Page 5 - LatAmOil Week 27

LatAmOil COMMENTARY LatAmOil

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? exports to Mexico
With respect to policy shifts, the concerns have authorities had taken actions against US firms
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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