Looking North: Mexico and the US
By Editorial Dept - Nov 29, 2013, 3:54 PM CST
Bottom Line: Energy reform in Mexico will probably happen in pieces, and more slowly than it first appeared, but it must happen.
Analysis: A recent presentation by a big oil CEO highlighted the US’ interest in working with Canada. A number of times throughout his presentation he compared the US/Canada combined market to China, Japan, Europe, and India. But North America doesn’t stop in El Paso.
In recent conversations with oil majors, the “Mexico fever” that erupted following President Enrique Peña Nieto’s pledge to reform the energy industry seems to have subsided since the specifics of his contemplated changes became public in the summer 2013. Those modifications leverage “partnerships” more than the inherent appeal of untapped reserves, which also means that the success of the reforms depends on flourishing partnerships.)
Just as the US is considering the Keystone XL pipeline, and greater imports of Canadian oil (especially from oil sands), Mexico should look north for US cooperation on its oil and gas projects. Pemex recently brokered a deal for the newly split Los Ramones gas pipeline running from Agua Dulce in South Texas through Nuevo Laredo and Tamaulipas to Aguascalientes (Los Ramones Norte – estimated cost US$1 billion) and then to Querétaro/Guanajuato (Los Ramones Sur – estimated cost US$800 million). TransCanada, Enagás (Spain) and GDF Suez France expressed interest in…
Bottom Line: Energy reform in Mexico will probably happen in pieces, and more slowly than it first appeared, but it must happen.
Analysis: A recent presentation by a big oil CEO highlighted the US’ interest in working with Canada. A number of times throughout his presentation he compared the US/Canada combined market to China, Japan, Europe, and India. But North America doesn’t stop in El Paso.
In recent conversations with oil majors, the “Mexico fever” that erupted following President Enrique Peña Nieto’s pledge to reform the energy industry seems to have subsided since the specifics of his contemplated changes became public in the summer 2013. Those modifications leverage “partnerships” more than the inherent appeal of untapped reserves, which also means that the success of the reforms depends on flourishing partnerships.)
Just as the US is considering the Keystone XL pipeline, and greater imports of Canadian oil (especially from oil sands), Mexico should look north for US cooperation on its oil and gas projects. Pemex recently brokered a deal for the newly split Los Ramones gas pipeline running from Agua Dulce in South Texas through Nuevo Laredo and Tamaulipas to Aguascalientes (Los Ramones Norte – estimated cost US$1 billion) and then to Querétaro/Guanajuato (Los Ramones Sur – estimated cost US$800 million). TransCanada, Enagás (Spain) and GDF Suez France expressed interest in the 1.43 billion-cubic-foot capacity pipeline prior to an October tender that was cancelled, due to a lack of formal bids. Construction of the northern portion was awarded to Tag Pipelines with Gasoductos de Chihuahua and IEnova (a subsidiary of US-owned Sempra) in early November 2013. These kinds of forays into the Mexican market bode well for continued expansion, and should leave all sides happy.
The shale revolution is farther along in the US, bringing the cost of gas down to US$4 per million BTU in Texas while Mexico currently imports gas at cost of US$20 per million BTU. Cross-border pipelines may help to moderate that disparity. Aside from pipelines to aid with the mass transport of gas (critical for manufacturing and heavy industry growth in Mexico), US companies could share expertise with Pemex to extract shale gas and deep-water oil reserves, the two keys to Mexico’s energy future.
Most refineries along the US Gulf have already been retrofitted to process Canadian sour oil, so declines in Mexico’s output are less of a concern to those operators. But Mexico is sitting on untold reserves just south of those refineries.
Recommendation: Companies like Shell, Chevron and Anadarko, who already operate in the Gulf of Mexico are undoubtedly the best positioned to partner with Pemex on new projects in Mexican territory there. Our discussions with those companies revealed interest in Mexico, but also an insistence that the terms of any partnership with Pemex or the Mexican government be reasonable and sustainable. Foreign firms would prefer concession rights and a share of the oil production, not just the profits. Mexico prefers the opposite, but needs to make sure it doesn’t get left out of the US/Canada energy alliance.
Analysis: A recent presentation by a big oil CEO highlighted the US’ interest in working with Canada. A number of times throughout his presentation he compared the US/Canada combined market to China, Japan, Europe, and India. But North America doesn’t stop in El Paso.
