• 15 hours Oil Prices Rise After API Reports Major Crude Draw
  • 16 hours Citgo President And 5 VPs Arrested On Embezzlement Charges
  • 16 hours Gazprom Speaks Out Against OPEC Production Cut Extension
  • 17 hours Statoil Looks To Lighter Oil To Boost Profitability
  • 18 hours Oil Billionaire Becomes Wind Energy’s Top Influencer
  • 19 hours Transneft Warns Urals Oil Quality Reaching Critical Levels
  • 20 hours Whitefish Energy Suspends Work In Puerto Rico
  • 21 hours U.S. Authorities Arrest Two On Major Energy Corruption Scheme
  • 1 day Thanksgiving Gas Prices At 3-Year High
  • 2 days Iraq’s Giant Majnoon Oilfield Attracts Attention Of Supermajors
  • 2 days South Iraq Oil Exports Close To Record High To Offset Kirkuk Drop
  • 2 days Iraqi Forces Find Mass Graves In Oil Wells Near Kirkuk
  • 2 days Chevron Joint Venture Signs $1.7B Oil, Gas Deal In Nigeria
  • 2 days Iraq Steps In To Offset Falling Venezuela Oil Production
  • 2 days ConocoPhillips Sets Price Ceiling For New Projects
  • 4 days Shell Oil Trading Head Steps Down After 29 Years
  • 5 days Higher Oil Prices Reduce North American Oil Bankruptcies
  • 5 days Statoil To Boost Exploration Drilling Offshore Norway In 2018
  • 5 days $1.6 Billion Canadian-US Hydropower Project Approved
  • 5 days Venezuela Officially In Default
  • 5 days Iran Prepares To Export LNG To Boost Trade Relations
  • 5 days Keystone Pipeline Leaks 5,000 Barrels Into Farmland
  • 5 days Saudi Oil Minister: Markets Will Not Rebalance By March
  • 5 days Obscure Dutch Firm Wins Venezuelan Oil Block As Debt Tensions Mount
  • 6 days Rosneft Announces Completion Of World’s Longest Well
  • 6 days Ecuador Won’t Ask Exemption From OPEC Oil Production Cuts
  • 6 days Norway’s $1 Trillion Wealth Fund Proposes To Ditch Oil Stocks
  • 6 days Ecuador Seeks To Clear Schlumberger Debt By End-November
  • 6 days Santos Admits It Rejected $7.2B Takeover Bid
  • 6 days U.S. Senate Panel Votes To Open Alaskan Refuge To Drilling
  • 6 days Africa’s Richest Woman Fired From Sonangol
  • 7 days Oil And Gas M&A Deal Appetite Highest Since 2013
  • 7 days Russian Hackers Target British Energy Industry
  • 7 days Venezuela Signs $3.15B Debt Restructuring Deal With Russia
  • 7 days DOJ: Protestors Interfering With Pipeline Construction Will Be Prosecuted
  • 7 days Lower Oil Prices Benefit European Refiners
  • 7 days World’s Biggest Private Equity Firm Raises $1 Billion To Invest In Oil
  • 8 days Oil Prices Tank After API Reports Strong Build In Crude Inventories
  • 8 days Iraq Oil Revenue Not Enough For Sustainable Development
  • 8 days Sudan In Talks With Foreign Oil Firms To Boost Crude Production
Alt Text

The Kurdish Oil Gamble Has Backfired

Kurdistan’s failure to hold the…

Alt Text

Are Oil Markets Immune To U.S. Shale?

Oil prices have maintained their…

Alt Text

EVs Won’t Stifle Oil Demand Anytime Soon

There will be 280 million…

Jeremy Martin

Jeremy Martin

Jeremy is a frequent commentator and writer on Latin American and energy issues speaking at international conferences and appearing in both print and broadcast media.…

More Info

Three Issues you Might have Missed about Energy Reform in Mexico

Three Issues you Might have Missed about Energy Reform in Mexico

On December 7 Mexico’s Congress formally introduced legislation aimed at a major overhaul of the nation’s energy sector. At the core of the measures are amendments to the Mexican Constitution. On December 11, after an all-night session underscoring the immensity of what is at stake, Mexico’s Senate approved the bill with only a few modifications of the original draft. The debate and process has now shifted to the Chamber of Deputies where it is widely expected to pass in its current form given the majority held by the PRI and PAN parties.

There is no lack of commentary or analysis on the content of the legislation, but there are three broad areas that perhaps have not received the attention in the last few days that they merit, and deserve highlighting as the process winds toward implementation.

It’s not just about oil

For a variety of obvious reasons, oil and the changes at Pemex have dominated the headlines swirling around the unveiling of the 295 pages of legislation. True, electricity is nowhere near as polemic or political as oil in Mexico, but in terms of the impact on Mexico’s competitiveness and fostering sustained economic growth and development, it is arguably just as critical. And, what the energy reform outlines for the future of Mexico’s electric sector is perhaps just as monumental and could be as transformational as that for oil and natural gas.

As with the changes at the national oil company, Pemex, the state power monopoly, CFE will also be forced to transition from its current monopoly status to that of a state-owned enterprise a “productive public company” and a new reality, particularly when it comes to planning and control.

Related article: Budget Deal Opens up Parts of Gulf of Mexico for Drilling

The reform legislation sets forth a path to the creation of an independent system operator (CENACE) from that which is controlled by CFE today. The goal is to incentivize private participation in power generation to keep up with demand growth and to redress Mexico’s uncompetitive electric tariffs, particularly for the industrial sector. But the reform also maintains the role for the state and CFE in transmission and distribution, thereby demanding massive investment in infrastructure as well as more transparent and feasible interconnection policies with CFE to create the market envisioned and to bring on-line the power generation that the other changes intend to unleash.

Patience is indeed a virtue and overhauling Mexico’s electric sector should be thought of in terms of years and maybe even decades. But, in sum, the changes set forth for the power sector in Mexico are a big deal too.

The Peruvian model

For years, Mexico’s energy reform debate in terms of what international oil model to draw from oscillated between that of Norway, Brazil and Colombia. All three again figured throughout the legislation set forth and approved by the Senate; the stipulation of a sovereign oil fund and how it would be managed was a clear nod to Norway. But the recent question marks surrounding Brazil’s efforts to revamp its petroleum law, principally with regards to the pre-salt, were not missed by the drafters of Mexico’s energy reform.  

Enter Peru. Indeed, the section in the legislation focused on how the Peruvian model works was at once intriguing but more importantly illustrative. The flexibility in the model for oil and gas licenses in the Andean nation received considerable attention and will continue to do so as follow-on legislation in Mexico takes shape. Peru is not a major oil producer, but has realized several international bid rounds and has contracts in place with many major international firms. From state ownership of hydrocarbons in situ to the contract terms and tax and royalty scheme, the Peruvian model is, as the legislation notes, worth reviewing as Mexico moves forward with a new upstream reality.

The homage to the Peru model surely undergirds the cautious optimism that is circulating among the international investment community and especially international oil companies this week.

The devil is in the details – or in the secondary legislation

The events of the last few days are immense and certainly historical markers for Mexico. The legislative package set forth, in all of its 295 page glory, was clearly a product of exhaustive analysis and underscores the capabilities of Mexico’s technocrats and functionaries. But, what it does not change is the importance of the follow-on legislation that will fill in the ample gaps that remain on Mexico’s path to transformational energy reform. The legislation’s flexibility is at once a huge positive but also a signpost that the hard work is only beginning with the Constitutional amendments.

Related article: Is a final Decision on Keystone XL Close at Hand?

There are a range of areas where the Mexican Congress has been charged with developing follow-on laws and regulations, many of them in a stipulated time period (which are, in large measure, quite aggressive).

These may be the most critical: Round Zero. What Pemex chooses to keep in its portfolio and what the round looks like will go a long way to determining the opportunities for private companies down the road.

Related, is defining the interface between SENER, CNH and Pemex and the licensing and bidding process for upstream investment. Moreover, clear delineation of the composition of the “new” CNH is vital. It will require strong, politically capable authorities as evidenced by Brazil and Colombia’s examples when they launched new upstream regulators in 1997 and 2003, respectively.

Breaking decades-old monopolistic behaviors at Pemex and CFE will take more than just the current assertions in the legislation. The rules of the road and outline for the transition of Pemex and CFE from state monopolies to profit seeking state owned enterprises and particularly vis-à-vis the unions at each are of critical importance and will also require political savvy across the senior levels of both.

Borrowing from former US Secretary of State Dean Acheson, it is amazing to witness what is transpiring and those involved can rightfully claim to be present at the creation of a new energy chapter for Mexico.

By. Jeremy Martin

the Mexican Senate has approved the bill to overhaul the country’s energy sector. The whole situation has been thoroughly covered by the media, however there are three issues which have

Back to homepage

Leave a comment

Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News