Reshaping the Mexican energy sector

Post by Agathe Vigne for Mexico Business Blog

Shale gasPetroleos Mexicanos (Pemex) and Mexico’s energy sector in general are bound to evolve in the next six years. That was one of Mexico’s newly elected president Enrique Pena Nieto’s  seven campaign promises.  To embody that  change, EPN is counting on two new leaders at the head of the ministry of Energy (Sener) and Pemex.

The new energy minister, Pedro Joaquin Coldwell, is a 62-year-old seasoned politician. A long-time member of the PRI, Coldwell has occupied a variety of positions inside the party and has served as local and federal deputy and senator for the state of Quintana Roo.

On the other hand, 37-year-old Emilio Lozoya Austin has been at the head of private companies and investment funds, as well as Director for Latin America at the World Economic Forum.  Except for his past stint as analyst at Mexico’s Central Bank, Banco de Mexico, Emilio Lozoya has no real experience in government. However, he is the son of a former energy minister under Carlos Salinas de Gortari, Emilio Lozoya Thalmann.

Though their profiles strongly differ – Coldwell, the experienced politician specialized in tourism and development, and Lozoya, the young financial shark – they  have one thing in common: they are new to the energy sector.  That could be seen as a weakness, as critics already warn of the privatization of Pemex and the uncontrolled selling of national resources to transnational companies.

Nevertheless, their relative independance from the controversial Oil Worker’s Union (STPRM) could also be a strength.  Indeed, the country needs to review its reliance on hydrocarbon resources and ensure the future financial health of Pemex through courageous exploration programmes and a profound internal restructuring.  This will mean making decisions that may be opposed by powerful union officials, some of which are influential members of the PRI.

Changes already announced for Pemex in its 2013-2017 business plan include the gradual opening of  Pemex refining and the modernization of petrochemical plants (particularly regarding ensuring the electricity supply) and transportation operations.

On exploration and production, not much has been said since the discovery of two deepwater fields this year. Though analysts are betting on more associations with the private sector – through joint industry projects, for example –  no constitutional change has been clearly announced yet. However, a modification of article 27 of the Mexican Constitution is necessary for Pemex Exploration and Production (PEP) to create associations with private firms.

Medium-term challenges are not only financial but also technological for PEP and a complete reshaping of the subsidiary is necessary for its long-term survival.  In a previous post, we touched on the financial and technological challenges associated with deepwater exploration and production.

From “Perspectives for the development of shale oil and gas” (“Perspectivas para el desarrollo de gas y aceite de lutitas”), a document published by the Ministry of Energy (SENER), it can be concluded that PEP is also struggling with its 2010-2012 shale gas exploration and exploitation plan.

Actually, according to the author, Mario Gabriel Budebo, the only possibility for Pemex to make substantial gains with shale gas exploitation is to find oil as well in the field, and in sufficient quantities to make it profitable. Furthermore, it would be interesting to add environmental costs to the already high E&P costs, to assess whether shale gas is sustainable as well as commercially viable.

Since the 2010-2012 plan was launched, six wells have been drilled in the north of the country but very little gas was obtained, according to UNAM oil analyst Fabio Barbosa.

In its 2013-2017 business plan (published in November 2012), Pemex announced plans to drill 175 shale gas wells. Nevertheless, only a few weeks after the plan’s publication, Pemex restructured its activities and shifted focus from the north of the country to the Tampico basin region (north of Veracruz), abandoning large territories with shale gas potential.

It is difficult to read Pemex’s (and Mexico’s) policy on this precise point.  While the United States is starting its transition to natural gas and has been exploiting shale gas more intensively in anticipation of the oil peak, Mexico has been unable to develop technological and financial models adapted to the E&P of non-conventional resources.

According to Patricia Espinosa of the Foreign Affairs Ministry (SRE), Mexico holds the world’s fourth largest recoverable shale gas resources.  Will the new directions of SENER and Pemex drive the transition toward shale gas or will they bet on other alternatives?

Email Agathe Vigne at a.vigne@bdp-americas.com


Sources: Reforma, 15-11-2012 y 13-11-2012
Business News Americas 28-11-2012 y 3-12-2012
CNNMéxico 30-11-2012
“Perspectivas para el desarrollo del gas y aceite de lutitas”, Mario Gabriel Budebo, Secretaria de Energia, 1/10/2012

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