Page 150 - STRATEGY Magazine

SPECIAL INSIGHT: OIL & GAS
Transformational Change for Oil and Gas
After Mexico’s 2013 transformational reforms to the energy sector, the nation’s oil and gas industries foresaw great success. Market forces may disagree.
Global GDP is poised to nearly double over the next 20 years, propelled by a rising tide of developing coun- tries. As two billion people exit poverty, they will be looking for energy sources to light their homes, pow-
er their businesses, and connect to the globalized market. And although governments from both hemispheres are incentivizing investment in clean energy, oil and gas are expected to contin- ue in a pivotal role in energy generation for decades to come. Mexico’s hydrocarbons industry provides a snapshot of what’s to come: while old modes of production fall out of use and new solar farms grab the headlines, it is still oil and gas that will provide most of the country’s power for the foreseeable future.
AMBITIOUS REFORM
Launched in 2013, the Reforma Energética is one of the most daring energy transformation projects in recent history, and hydrocarbons are at the heart of it. A steady decline in produc- tion and a widening petroleum and gas trade deficit with the United States have catalyzed constitutional change in Mexico. On the chopping block are the state’s two energy monopolies:
the Federal Electricity Commission (CFE) and the state-owned oil and gas company, Pemex. For the first time since the indus- try was nationalized in 1938, Pemex will be forced to compete against private firms. This massive public corporation employs scores of thousands and operates throughout the country—but the erstwhile cash cow is running out of money thanks to pen- sion obligations, debts to suppliers, and a decline in production based on the price of oil.
A HISTORY OF PRODUCTION ...
Mexico has long been one of the world’s leading crude oil exporters, and the trade has done much to line state coffers and subsidize energy costs for impoverished residents. Yet only 2 percent of the nation’s cumulative historical production comes from fields tapped within the last 25 years. (By contrast, the United Kingdom has drawn 35 percent of its cumulative histori- cal production from young fields.) To make matters worse, older fields are nearing retirement. Nearly half of onshore and more than half of shallow offshore technically recoverable resources have already been tapped. Future production will necessitate
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