Mexico's Potential Energy Reforms Would Open Doors to U.S. Oil and
Gas Cos
Location: New York
Date: 2013-08-13
Mexico’s contentious political landscape is transforming
now into a battle over economic ideals. At issue is the debate over
the nation’s state-owned gem and whether the government there will
be able to sell private stakes to foreign investors, which include
those U.S.-based oil and gas giants.
Mexico is rich with oil and gas resources. But the country has
been unable to harness that vast wealth because of under-investment
by the Petroleos Mexicanos, Pemex. Now, the nation’s president,
Enrique Pena Nieto, is expected to make a proposal to allow foreign
stakes, although the Nieto is insistent that Mexico would retain the
majority stake. Despite that concession, he must garner two-thirds
of his national Congress to make this move legal -- difficult in a
country where this entity is a matter of national pride.
The country’s back is against the wall. A story in Bloomberg
said that if the Mexican congress is able to pass an energy
reform bill, it would create as much as $50 billion in annual new
investment. It said that President Nieto has both the determination
and the political capital to push through such changes. The
concensus: Mexico must attract capital for both deep-water and shale
gas deposits.
Previous attempts to alter the country’s rules to allow ‘profit
sharing’ have faltered. That applies to exploration, extraction and
refining. But, a few years ago, national leaders were able to sell
bonds as well as get some agreements in place to allow for
liquefied natural gas development.
Meanwhile, about 40 percent of the oil and gas company’s revenues go
to the federal government. Critics of proposals to privatize any
portion of Pemex say that a better national policy would be to let
the company keep more of its revenues, enabling it to re-invest
larger proceeds into production and refining.
If Pemex does not attract foreign capital, Mexico would risk a
declining gross national product -- one fueled by oil money that
accounts for as much as 70 percent of the national wealth. The U.S.
Energy Information Administration says that Mexico could become
a net-importer of oil by 2020 without foreign investment. It also
says that Mexico holds the world’s fourth largest shale gas
reserves.
“Non-conventional (reserves) are going to play a bigger and bigger
role,” Carlos Morales, Pemex's
exploration and production chief, told Reuters in late April.
"If not by Pemex, then as part of the country's overall oil policy."
The end of the 20th Century saw a rush to privatize the utility and
energy sectors in Latin America generally. But government meddling
along with an economic slump had caused some retrenchment. While
much of the focus may now be on giving state-run enterprises more
latitude to pursue outside ventures, there's still opportunity for
those with the stomach for risks.
Mexico, though, has been a harder nut to crack. The Enron crisis and
the subsequent problems in the United States that were tied to
ill-conceived deregulation schemes left a lot of Mexican
policymakers leery about opening markets there. It’s especially true
when it comes to Pemex.
Mexico needs to find more oil and gas deposits but it is heavily
indebted and can't do it alone. The solutions are not easy ones to
implement or to pass into law. But it is apparent that government
subsidization is becoming increasingly difficult in the current
economy. An infusion of outside capital is necessary to bolster the
infrastructure and meet future energy demand.
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