The Mexican energy market
Mexico’s Energy Reform of 2013 set in motion a series of changes that continue to revolutionize the country’s oil and gas industry. With vast untapped hydrocarbon reserves, increasing demand from a growing population and economy and a new regulatory framework, Mexico is quickly becoming one of the most exciting markets for oil and gas companies along the entire supply chain.
Despite production declines of more than a decade, PEMEX remains Mexico’s oil and gas heavyweight, as the eighth largest oil producer, eighth largest drilling company and 15th largest refining company in the world. But its decades-long monopoly is over and new private and international companies are entering Mexico’s upstream market through CNH’s licensing rounds, while others have started to capitalize on midstream infrastructure and downstream gasoline distribution opportunities. PEMEX itself has set a clear path forward with a five-year business plan to stabilize and boost reserves and production as it faces the challenge of private competition.
While previous years were marked by expectation, concrete results defined 2016 and 2017. The completion of the country’s first deepwater licensing round was the highlight of Round One, which attracted expected investments totaling US$49 billion. The first part of Round Two, in which a record number of companies had placed bids, was characterized by several JVs between NOCs and IOCs, including that of Royal Dutch Shell and Total. With this success behind it, the industry now awaits the remainder of the licensing rounds with optimism. The same year saw Australia’s BHP Billiton become PEMEX’s first-ever partner through a farm-out and together they will develop the deepwater Trion block. PEMEX also showed its competitiveness in the licensing rounds when it won a deepwater block in partnership with Chevron and INPEX in Round 1.4.
July 2017 saw a worldclass oil find off the coast of Mexico in the Zama-1 field, where the consortium of Talos Energy, Sierra Oil and Gas and Premiere Oil made a discovery of over 2 BOE; making it the first and largest oil find by the private sector in Mexico. The drilling program is expected to start in November 2018. Other successful discoveries were those of Italian operator Eni in the Amoca-3 and Miztón-2 wells in the shallow waters of the Campeche Bay, offshore Mexico, with discoveries of 1,3 BOE and 1,4 BOE, respectively. In November 2017, PEMEX announced the largest onshore oil find in the last 15 years through drilling the Ixachi-1 well, 72 kilometers south of Veracruz. Volumes of this discovery were similar to the Zama1 oil find. With these oil finds, Mexico was among the top three countries in the world in terms of largest volumes discovered in 2017, together with Senegal and Guyana.
Exciting projects are already up and running in the midstream segment, and others are planned. 2017 also delivered the liberalization of gasoline prices in Mexico, the final stage in the process toward a competitive fuel distribution market with both Mexican and international companies competing for business.
In terms of electricity Mexico’s Energy Reform has had equally far-reaching consequences on the corresponding market. Within three years after the 2013 reform the energy regulators presented the first two long-term electricity auctions and the government agreed to the UN’s COP21 energy efficiency and climate change targets. In this new dynamic environment, solar and wind power technologies are the main winners of the power auctions. At the same time, CFE and private players are shifting away from the hydrocarbon-fuelled plants to cleaner and cheaper natural gas.
Among other developments, 2017 will see the entry of private sector players as partners with CFE transmission. Siemens won the highly awaited tender for a HVDC line connecting Oaxaca and the Valley of Mexico, with an estimated project cost of US$15 billion.
The launch of the wholesale electricity market in January 2016 was a breakthrough in the transformation of Mexico’s electricity industry, bringing it closer to modern standards of power generation and trading. Novelty and uncertainty are keeping some companies from entering the new model but growing interest from generators, qualified suppliers, off-takers and traders has started to lift the barriers, supported by the performance of public entities.