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Energy Reform in Mexico

Energy Reform in Mexico. Challenges, changes and prospects Duncan Wood Mexico Institute, WWICS, November 2008. Outline. Background The reform Impact The future. BACKGROUND. Mexico as outlier. Unrestricted private investment.

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Energy Reform in Mexico

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  1. Energy Reform in Mexico Challenges, changes and prospects Duncan Wood Mexico Institute, WWICS, November 2008

  2. Outline • Background • The reform • Impact • The future

  3. BACKGROUND

  4. Mexico as outlier Unrestricted private investment Private investment through risk contracts, Joint Ventures, etc. No private investment

  5. Total hydrocarbon reserves Millions of barrels of crude equivalent 58,205 57,741 56,153 52,950 50,032 48,041 46,914

  6. Scenario 1: decline 6.5 billiondollars a year Thousands of barrels per day

  7. Scenario 2: maintaincurrentsituation 10 billiondollars a year

  8. Scenario 3: Growth 15 billiondollars a year

  9. Scenario 4: maximisingproduction 25 billiondollars a year

  10. Deep water potential

  11. Background: 2007 evaluation of PEMEX • Changes in global oil markets • The end of easy oil • Rising costs and complexity • Human resource challenges • Industry structure • The energy transition to a post-hydrocarbon model • PEMEX internal problems: • Falling production • Falling reserves • Low replacement rate • Low recovery rate in mature fields • Growing refined product imports • Infrastructure problems

  12. The reform

  13. The Axes of Energy Reform Oil Transition Improve execution capacity and raise efficiency levels Challenges Raise investment levels Incorporate cutting-edge technologies Facilitate the energy transition Strengthen the regulator and improve the fiscal regime Strengthening PEMEX Changes Sustainable energy Autonomy Increase national content Transparency and accountability Renewables Flexible contracts

  14. Lawsmodifiedbythereform • Renewable energy and energy savings : • Ley para el Aprovechamiento Sustentable de la Energía • Ley para el Aprovechamiento de Energías Renovables y el Financiamiento de la Transición Energética • Better planning and strategic controls: • Artículo 33 de la Ley Orgánica de la Administración Pública Federal (nuevas atribuciones a SENER) • NuevaLey de la Comisión Nacional de Hidrocarburos • Ley de la Comisión Reguladora de Energía (CRE) • Strengthening PEMEX: • Ley Reglamentaria del Artículo 27 Constitucional en el Ramo del Petróleo • Ley de Petróleos Mexicanos • Ley Federal de Derechos

  15. According to the Mexican government Impact

  16. Production • The government predicts that the changes will increase both production and oil revenues. Crude oil production (thousands barrels per day) Crude oil production per capita (barrels) With Reform With Reform Fuente: SENER

  17. Expectedresults • New discoveries. 3P discoveries (with Reform) (millions of barrels of oil equivalent) 3P replacement rate (with Reform) (%) Fuente: SENER

  18. New oil fields • The government expects that the reform will help in the replacement of mature and declining fields Production from new projects with the reform (thousands of barrels a day) Value of new production projects (millones de pesos) *MME: 75 d/b y tipo de cambio 13 pesos por dólar. Fuente: SENER

  19. Refining • It is expected that the reform will have a positive impact on refining capacity Production versus demand/gasoline (thousands of barrels a day) Fuente: SENER

  20. New investments and new governmentrevenues • An extra 70 billion pesos a year in new investments • The government and PEMEX will benefit by between 194 y 83 billion extra pesos per year in revenue New investments (billions of pesos) Government revenue (billions of pesos) Promedio Fuente: SENER

  21. The future

  22. What’s next? • Will production recover? • Is the government “over-selling” the reform? Disjuncture between rhetoric pre- and post-reform. • Deep water exploration and production – the technological, financial, technical challenges • PEMEX debt – PIDIREGAS and the rest.. • Real investment in renewables – Mexico’s potential • The electricity sector – modernization, efficiency, the union • The political challenge

  23. For more information, please contact me at dunky@itam.mx Appendices

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