Page 12 - NorthAmOil Week 27
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NorthAmOil                                   COMMENTARY                                          NorthAmOil


                         A new deal                           in Mexico wants to go in the direction of nation-
                         The new agreement replaces the 26-year-  alising energy production. Pushing back against
                         old North American Free Trade Agree-  that is something that we have done in this
                         ment (NAFTA), and its roll-out is cause for   agreement and expect to do,” he told US legisla-
                         celebration.                         tors last month. “To the extent we have tools, we
                           USMCA promises to intensify the integra-  expect to use them to require equal treatment.”
                         tion and interconnection of energy markets in   Even so, Argus Media noted in late June that
                         North America by lifting all tariffs on cross-bor-  USMCA did not include any explicit guarantees
                         der shipments of crude oil, natural gas and   with respect to upholding the previous Mexican
                         refined petroleum products. For example, it will   administration’s reforms. It also noted that the
                         help US refiners that no longer have access to   new deal imposed certain limits on NAFTA’s
                         Venezuelan feedstocks by facilitating imports of   investor-state dispute settlement provisions.
                         heavy crude from Canada.             This is a concern, since those provisions gave
                           It will also offer US gas producers more   US firms the option of looking beyond Mexico’s
                         access to domestic markets in Mexico, where   legal system for relief in the event of disputes, it
                         energy demand has been rising.       explained.
                           Nevertheless, the deal has not won acclaim
                         on all fronts. Some US observers have raised   Bureaucratic hold-ups
                         questions about the USMCA, saying they fear   Additionally, API recently raised the question
                         that the new agreement will not do enough to   of whether the Mexican government was truly
                         eliminate problems arising from changes in the   committed to giving fair treatment to US com-
                         Mexican government’s energy policy over time   panies involved in oil and gas projects.
                         and from bureaucratic obstructionism.  members of Trump’s cabinet that the Mexican  “
                                                                In mid-June, the API said in a letter signed
                                                                                                    US natural gas
                                                              by Sommers and sent to Lighthizer and several
                         Locking in reforms?
                         With respect to policy shifts, the concerns have   authorities had taken actions against US firms   exports to Mexico
                         centred on the fact that Mexico’s current govern-  that went against the principles outlined in both   have risen to
                         ment is not as amenable to free-trade principles   NAFTA and USMCA. It said API’s members
                         as its predecessor                   had reported numerous instances of bureau-  record highs over
                           When the Trump administration began   cratic interference in their Mexican operations.
                         negotiating USMCA, Mexico’s president was   For example, it said, Mexico’s Energy Reg-  the last month
                         Enrique Peña Nieto, a market-minded leader   ulatory Commission (CRE) often “prolongs
                         who introduced a wide-ranging set of reforms   administrative processes for permits to transfer
                         in the energy sector in 2013-2014. These reforms   legal ownership that are by regulation supposed
                         did not involve the privatisation of Pemex, the   to be granted within 90 days.” Additionally, it
                         national oil company (NOC). But they did allow   said, the Energy Ministry (known locally as
                         private-sector companies to bid for oil and gas   SENER) often enforces quality standards more
                         fields and to take the leading role in upstream   strictly when monitoring US fuel suppliers than
                         projects.                            it does when Pemex is involved. Likewise, Pro-
                           Now, though, Mexico’s government is under   feco, the national consumer protection agency,
                         the control of Andres Manuel Lopez Obrador,   has also ordered retail filling stations operated
                         who is very different from his predecessor.   by US companies to shut down fuel pumps “for
                         The current president is a populist, suspicious   minor or non-existent infractions for pump and
                         of outside investment and sceptical about free   hose reliability and for measurement accuracy,”
                         markets. He believes that Pemex’s best option   it said.
                         is to secure more state support, to build more   These expressions of concern may indicate
                         refineries and to maintain control over its entire   that Lopez Obrador is not quite ready to remove
                         value chain rather than opening it up to foreign   all obstacles facing the US oil and gas companies
                         partners. He has put the brakes on the reform   that are active in Mexico. Even so, the current
                         process through actions such as cancelling or   president is not looking to shut US operators
                         postponing offshore bidding rounds.  out completely. US suppliers have reported that
                                                              natural gas exports to Mexico rose to record
                         Dispute resolution                   highs over the last month, as warmer weather
                         US Trade Representative (USTR) Robert Ligh-  has increased the load on power plants, and they
                         thizer has argued that Lopez Obrador’s efforts   could see volumes reach new peaks in August,
                         to prop up Pemex will not have negative effects   according to Platts Analytics. ™
                         on outside investors because they uphold the
                         most important parts of Peña Nieto’s agenda. His
                         office wrote in a new fact sheet that was posted
                         on the USTR’s website last week that the deal
                         “locks in for US investors, service suppliers and
                         other companies the benefits of Mexico’s historic
                         2013 energy reforms.”
                           Lighthizer has also said that USMCA’s provi-
                         sions will protect US companies, even if Lopez
                         Obrador’s government took drastic action
                         against foreign investors. “The administration



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