Leading members of Mexico’s energy sector will gather this week to discuss key reforms to the nation’s oil and gas industry.
The Mexican Energy Opportunities Summit scheduled for April 28-30 is one of several gatherings to address a wholesale revision of Mexico’s oil and gas industry as the nation grapples with a plunge in oil revenue.
The process of opening the nation’s energy sector to private investment for the first time in 75 years began in August 2013, when President Enrique Pena Nieto announced reforms to the system, which had been operated as a state-owned monopoly by Petroleos Mexicanos (PEMEX), the national oil company.
The Mexican Senate began working on the nuts-and-bolts of reform - primarily contractual, tax and royalty issues - in April 2014, completing its part of the job in August. Nieto promptly signed the legislation, and the country’s so-called “Round Zero” assigned assets to PEMEX that included 83 percent of the nation’s proven and probable oil reserves.
The reforms were hailed as medicine for the country’s ailing energy sector. Pemex had been operating at a loss since 1998 and production has dropped by one-fourth during the last decade to two million barrels per day.
Because the monopoly provides roughly one-third of Mexico’s revenue, the government had prevented it from reinvesting profits into exploration and maintenance, instead opting to use the declining revenues to pay its bills. Other factors in the steadily declining oil revenues include corruption and theft. The reforms were expected to address the worst of the energy sector’s problems and swell the Mexican treasury by as much as $50bn by 2018.
“Hailed by many analysts as the most significant economic reform undertaken by Mexico since its entrance into the North American Free Trade Agreement (NAFTA) in 1994, the energy reforms are expected to boost investment, growth, and eventually oil and gas production in the country,” the US Congressional Research Service said in a January report. “Investors appear to have maintained interest in Mexico’s energy sector despite recent declines in oil prices.”
Boom to Bust to Boom
Indeed, investors seem to be flocking to Mexico City this spring for conferences that are becoming regular events. They include the Mexico Oil & Gas Summit in Mexico City, the Mexican Energy Opportunities Summit scheduled for April 28-30, a May 5-7 Mexico Investment Ideas Conference sponsored by Credit Suisse, and a June 3-4 Mexican Energy and Infrastructure Finance Forum.
Much of the world’s easily obtainable oil supplies are depleting rapidly. The decline in mammoth, land- or shallow water-based fields has led major oil companies to spend billions on deep-water drilling projects in the Gulf of Mexico, and shale formations in Texas and North Dakota
The long-term picture has also become more important because of the decades-long turmoil in the Middle East, long a major supplier of US oil. While Canada still accounts for 28 percent of US dollars spent on crude oil, Mexican exports make up 12 percent of the total (Saudi Arabia is No. 2 with 18 percent of exports).
The US Energy Information Administration had estimated in 2013 that Mexico’s annual production would dwindle from 2.8 million barrels per day to 2.1 million barrels per day by 2040. After the reform legislation was passed, however, the EIA increased its estimate, and it’s now projecting that the reforms will send Mexican production as high as 3.7 million barrels per day.
Source: Al Jazeera