Mexico´s Energy Reform, new opportunities for the Romanian oil industry


By AGUSTÍN GUTIÉRREZ CANET, Ambassador of Mexico

Mexican President Enrique Peña Nieto signed on August 11 a packet of laws enacting a comprehensive energy reform, which represents an important business opportunity for foreign and Romanian oil industry.

In general terms, the Energy Reform opens to private investment the gas and oil market after 76 years of Pemex, endingthe State monopoly, so private firms, whether Mexicans or foreigners, can invest on exploration and exploitation of hydrocarbons from now on.

Mexico has more than 10 billion barrels of proven petroleum reserves, and is the 7th largest world producer.

The law´s approval prompted Moody´s Investors Service to raise Mexico´s credit rating one level to A3 from Baaa1, saying it will help add about  one percentage point to the country´s annual GDP  growth by 2018.

For Romanian oil companies, it means gaining access to untapped oil reserves that could total 113 billion barrels, including 26.6 billion in the deep waters of the Gulf of Mexico. The reserves are worth 11 trillion US dollars.

Mexico also boasts 460 trillion cubic feet of unexploited shale gas in the rock formations beneath its soil, worth an estimated 2.2 trillion of US dollars.

So, concerning business between Mexico and Romania, the Energy Reform represents a big opportunity for Romanian companies to access to one of the most important Mexican industries, which registered a production of 135 million tons of crude petroleum and more than 3 million of terajoules of natural gas in 2010.

The way in which private companies may participate in the exploration and exploitation of hydrocarbons will be by signing State contracts.

These contracts may be licensing, service and utility or production sharing, and will be allocated through auctions by the National Hydrocarbons Commission (CNH), one of the two industry regulators.

Each month, CNH will publish the number of contracts for exploration and extraction that are in force, and its terms and conditions, under the new Hydrocarbons Law, ensuring the transparency of these deals.

This Hydrocarbons Law provides the possibility that the contract awarded covers land held by an owner. In that case, to begin operations, the contractor will have to reach an agreement with the owner of the land. Under the agreement, the company will state which percentage of its earnings will be paid to the owner of the land: 0.5% to 2% if exploited oil or natural gas, and 0.5% to 3% if exploited shale gas.

The Energy Reform also opens the door to exploitation of shale gas, which is obtained through fracking: perforating the ground and introduces pressurized water and chemicals to get hydrocarbon.

In the same way, the Energy Reform is also a “green reform” because it promotes the use of cleaner fuels such as gas, which pollutes 70 per cent less than oil. It will also allow the production of energy based on renewable sources like solar, wind power, and geothermal energy.

After the signing of the Reform, the National Hydrocarbons Commission (CNH) and the Energy Regulatory Commission (CRE), which already existed, will have bigger powers. Both institutions are coordinated with the Government, so the board of both of them will be nominated by the President and must be confirmed by the Senate.

For example, from January 2016, CRE may issue permits for the opening of more gas stations, which means a big opportunity to invest, due to nowadays the only stations that exist in Mexico are Pemex franchises.

In the same way, it should be stressed that from 2018 the price of diesel and gas will be determined by the market and not bythe Government. Also,the price of liquefied petroleum gas (LP) will be out of government control from January 2017, marking the final opening of the Mexican oil market.

The Government will create an OilFund (as a trust) in the Bank of Mexico in order to manage oil revenues, with the aim to define a strategy for long-term savings and provide resources to the country.Each year, the Oil Fund will have to deliver the equivalent of 4.7% GDP for the national budget, thus the fund will contribute to infrastructure projects.

So, I invite Romanian oil industry companies to look into the new business opportunities emerging in Mexico. The Embassy is open for any future enquiries.

 

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