Energy reform to rev investment in Mexican economy.

Author:Ramirez, David
Position:INDUSTRY REPORT: ENERGY
 
FREE EXCERPT

[ILLUSTRATION OMITTED]

Mexico's energy reform is not just about oil and gas. Adding to the tremendous opportunities in hydrocarbons, a major overhauling of the country's electricity sector also opens the door wide to investors. But while the reform is itself a major accomplishment for President Enrique Pena Nieto and his team, his government still needs to address a few issues to secure its successful implementation.

Five years ago, it was hard to imagine that Mexico's oil and gas, and power sectors would be open to competition by 2015. Just two years after its approval, the country's energy reform is delivering results, but--not surprisingly, given its daunting scope--it is also facing obstacles.

One of the main hurdles, one beyond the government's control, has been the drastic plunge in world oil prices, which no one was able to anticipate even a year before the debacle. But the government also recognizes that its strategy failed to attract more and bigger investors, at least in the initial stages of the tenders for oil and gas exploration and for production areas.

Evidence of this acknowledgement is reflected in changes introduced to the tenders in subsequent stages, which indeed were effective in luring big players, such as Chevron, Shell, BP, Lukoil and Statoil to buy tender documents and become pre-qualified. In fact, one of contracts in the second auction was granted to ENI, the large Italian oil and gas multinational.

Tenders are dynamic, and the Pena administration may have to include other modifications to attract investors, especially if low oil prices persist or fall even further. Still, the government expects additional interest in future bids owing to the nature of upcoming areas, which include coveted reserves in the Gulf of Mexico. The authorities' goal is to offer almost 170 blocs in the short to medium term, which would require $50 billion in investments.

PEMEX READIES FOR COMPETITION

Increased interest in future tenders is also likely to be fueled by the possibility of teaming up with Mexico's state-run oil company Petroleos Mexicanos (Pemex). Although this will be an interesting prospect for the oil giant too, for now Pemex is focused on preparing to compete, amid challenges--such as the legal requirements forcing it to reduce its stake in business such as natural gas distribution--but also achievements--such as the firm's recent restructuring of its pension system.

Starting in January of 2016 Pemex will face gradual competition in...

To continue reading

FREE SIGN UP