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Mexico: energy opportunity or production demise?
Debra Beachy Petroleum News Contributing Writer
Mexico needs to pump vast amounts of new investment into energy exploration or face an energy deficit in the next 10 to 20 years that could affect North America’s security, said officials at a two-day energy conference April 1 and 2 in Monterrey, Mexico.
But getting that new investment poses a challenge.
Strict laws prohibit foreign investment in Mexico’s state-owned oil monopoly, Pemex. So Mexican legislators are pushing a bill to lower the amount — 60 percent of its revenues — that Pemex pays the government each year, so that more can be spent on exploration.
“The goal of Pemex (Mexico’s state-owned oil monopoly) is to increase production. If there is not new investment, production can’t increase, because Mexico is dealing with maturing fields that may last only another 10 or 20 years,” said Mexican Congressman Francisco Salazar, president of the House of Deputies’ Energy Commission.
Salazar, a conservative National Action Party deputy from the central state of San Luis Potosi, said all the political parties were behind the bill. “Everyone agrees on this,” he added. Fox has not been able to push reform Despite the urgency cited for more investment for crude production as well as oil and gas production, Mexican President Vicente Fox has not been able to push through energy reform that would permit more foreign investment, said Michelle Foss, executive director of the University of Houston’s Institute for Energy, Law and Enterprise, and a conference participant.
“Right now there are eight energy initiatives in Mexico’s Congress,” she said. “But it seems doubtful that they can get passed at this point.”
Even multiple service contracts that would pay fees to foreign oil companies to drill for gas in Mexico’s Burgos basin have been attacked as unconstitutional.
According to Congressman Salazar, there are seven bills dealing with electricity in Congress, and another that would allow more foreign investment in gas wells through Mexican majority-owned joint ventures.
Attempts to pry open Mexico’s energy sector to foreign oil companies have sparked bitter controversy and protest in Mexico, where the oil industry was nationalized in 1938 by President Lazaro Cardenas. Mexico has kept its oil industry closed to foreign oil companies, which aren’t allowed to have any share in production of crude oil or natural gas.
The Canada-based North American Forum on Integration organized the conference entitled: “Forging North American Energy Security,” which focused on Mexico as well as the increasingly interwoven energy networks of the United States, Mexico and Canada.
Ever since Sept. 11, energy security has been an even greater concern of the United States. Many analysts argue that the United States relies too much on unstable Middle Eastern energy sources. So now, even closer scrutiny is being given to Mexico and Canada, which plans to develop $30 billion worth of petroleum projects in Alberta, Newfoundland and natural gas off the Atlantic Coast, according to Shawn Smallman, director of Portland State University’s International Studies Program. The question is whether North American partners of NAFTA can agree on a shared vision of energy security, the forum’s organizers said. Enormous opportunity in Mexico “Mexico represents an enormous opportunity for new energy investment and production, but as we engage in more and more cross-border commerce and dialogue, it is important to look at Mexico in the North American context,” said Ed Kelly, vice president of Wood Mackenzie’s North American gas and power team.
Andres Rosental, a Forum board member and president of the Mexican Council on Foreign Relations, said the attention to energy, something that wasn’t included in the North American Free Trade Agreement, needs to be addressed.
“As a region, North America has among the richest and most diversified energy resources in the world, which favors a trilateral policy that … benefits the three nations,” he said.
Despite the absence of formal energy integration initiatives the three countries are becoming increasingly integrated when it comes to energy.
Mexico, the world’s fourth largest crude producer, has steadily increased its oil exports to the United States, making it a major supplier of crude.
U.S. companies already are building power plants in Mexico and are vying to build regasification terminals in Baja California to supply energy to California.
More than a dozen gas pipelines stretch across the U.S.-Mexico border. In early April a subsidiary of Houston-based Global Industries Ltd. announced it had won a $100 million pipeline installation project from Pemex to install pipelines in the offshore Cantarell field.
The cross-border energy needs also were underscored by an early April report on a major power outage that caused a blackout on Aug. 14, darkening all or parts of eight states from Michigan to New York, and areas of Canada. The U.S.-Canada Power System Outage Task Force report found the power industry’s disregard of its rules intended to ensure the reliable flow of electricity contributed significantly to last summer’s blackout, the Associated Press reported. Challenge to coordinate policy enormous Rosental said the challenge to coordinate a cohesive energy policy is enormous but crucial.
“Mexico, a country that is fortunate to have energy wealth — is facing a serious deficit in gas and electricity that is inhibiting our growth. If we don’t find a solution that allows us to attract financial and technical resources needed to exploit the huge fields of natural gas in the country’s northeast, then inevitably we will … continue to pay high prices for gas that we will be obliged to import.”
Mexico needs to develop all of its energy resources, along with the United States and Canada, he said, because each country “has its own interpretation” of how to best meet the goal of an integrated energy policy. It’s important to take steps toward meeting that goal, he said.
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