Mexico has tight deadline to pass next step in energy reform

15 May 2014 22:10  [Source: ICIS news]

HOUSTON (ICIS)--Mexico's Congress has until the start of the campaign season in September to pass the secondary laws of its energy reform, a key step to opening up the industry to outside companies, the country's former secretary of energy said on Thursday.

Once the campaign season starts, it will complicate the adoption of the secondary laws and possibly lessen the scope of the reforms, said Jordy Herrera, who now works as a consultant. He made his comments during the Mayer Brown Global Energy Conference in Houston.

For 75 years, Mexico has limited oil, gas, natural gas liquids (NGLs) and fuel production to Pemex, the state monopoly. Mexico's energy regulations were among the world's most restrictive. Through the years, the limits of the model became apparent, said Jose Valera, a partner at Mayer Brown.

Oil production has fallen from a high of 3.48m bbl/day in 2004 to the current 2.5m bbl/day.

Although Mexico is still a major oil exporter, it has a deficit in every other class of hydrocarbon.

The country relies on imports to satisfy 50% of gasoline demand, 20% of natural gas demand and 30% of liquefied petroleum gas (LPG) demand, Herrera said.

Moreover, Mexico lacks the feedstock to increase chemical production sufficiently to eliminate its deficit in the sector.

Energy reform could reverse Mexico's deficits by attracting outside money and expertise to develop the country's energy resources, build its infrastructure and increase its chemical capacity.

Already, the Mexican Congress has approved constitutional amendments that allow other companies to participate in the nation's energy sector.

Mexico reached the next milestone on 30 April, when President Enrique Pena-Nieto introduced the secondary laws to Congress. The secondary laws defined which entities could develop energy in Mexico and under what terms.

Congress needs to pass the secondary laws before the campaign season starts in September, Herrera said. Otherwise, the scope of the reforms could shrink.

Under the reforms, Pemex would not be privatised. However, it would be free to form joint ventures with other energy producers.

The reforms could potentially increase energy production and the GDP in Mexico. The nation's government predicts that oil production could rise to 3m bbl/day by 2018.

Over the next several years, Mexico could add an additional 2m bbl/day from deep-water reserves and 2m bbl/day from unconventional reserves, Herrera said, bringing total production to 7m bbl/day.

As a result of energy reforms, the sector will make a larger contribution to the nation's economy, said Delia Paredes, executive director of economic analysis for Grupo Financiero Banorte.

Current capital spending in the energy sector is equal to about 2.2% of Mexico's GDP. With the reforms, it could make up 4.8% by 2020, Paredes said.

By: Al Greenwood
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