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massive investments in equipment to access currently untapped fields in deep offshore and tight oil categories.
Simply put, the industry requires a massive capital infusion to maintain aging infrastructure and launch new projects. The historic drop in the price of crude in 2015 only punctuated an already dire situation for the country’s
... WAITING TO BE REVIVED
Mexico plans to press forward with its oil and gas blueprint, however. The new energy plan is based on six principles, including competition between public and private-sector producers, regula- tory strengthening, sustainability and environmental protection, and revenue maximization. The way these principles
Mexican-produced shale gas is expected to hit the market. Yet with the increased production expected from the Reforma and the significant untapped oil reserves lying in the Gulf—some 15 billion bar- rels of deepwater resources—this may not be a bad situation. The first priority for policymakers is removing barriers
to production. Once that has been done,
“Mexico has a lot of oil and gas, but it is not a petro economy. The average person in the streets cares about manufacturing jobs, security, good food, health, family. Very few out of the total population are depending on or working for Pemex—and Pe- mex represents an increasingly small share of the economy.” —Ivan Sandrea, CEO, Sierra Oil
economy, which relied on Pemex
for about one-fifth of its income. To many observers, the political diffi- culties engendered by dismantling a 75-year government monopoly pale in comparison to the impending col- lapse of domestic oil production.
Adding to the industry’s inter-
nal issues are external pressures, particularly from renewables. “Mexico’s energy sector has been based on oil
and gas for many years,” says David Shields, General Director of industry publication Energía a Debate, “but now the relative weight of oil and gas within the industry is decreasing significantly.” In his opinion, oil prices are unlikely to recover significantly in the face of an increasing concern with climate change.
play out will look very different for oil and for gas. While the two have been closely linked for decades, Mexican leaders understand that the nation’s gas production needs to break free of its ties to oil fields.
The near-term forecast doesn’t bode well for those trying to divorce the pair. Mexico’s gas and oil development will be tied together until the late 2020s, when
they will start worrying about nurtur- ing a gas sector independent of oil.
DRASTIC REFORM(A), QUICK RE- SULTS
While the Reforma was only signed into law in 2013, the early results have given Mexican officials cause to celebrate. The law stipulates that private companies can join the hydrocarbon market by bidding for contracts with Pemex. The fourth round of bidding for oil contracts alone is forecast to generate US$40 billion in investment over the next de- cades, with exploration blocks awarded to companies including Exxon, Chevron, and the China National Offshore Oil Corporation (CNOOC).
The reforms also stipulated transpar- ent and stringent regulatory oversight.
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