Challenges of Energy Reform in Mexico

Even though Energy Reform’s results have exceeded the government’s expectations so far, there are still challenges to overcome along the way.

According to data from the National Hydrocarbons Commission (CNH), there was an average of 15.5 drill platforms operating; 7.4 of them corresponded to private companies and 8.1 corresponded to Pemex, meaning that firms have reactivated marine exploration in Mexico.

The entity said that despite the recovery in exploration activities, drilling wells for exploratory and development are still low and rely heavily on Pemex.

The Confederation of Employers of the Mexican Republic (Coparmex) also said that only 30 companies have international certifications in Tabasco, which might represent challenges for the successful implementation of Energy Reform.

Coparmex representative José Zúñiga said that the regional economy will improve thanks to the new oil industry, but people must be patient and prepared to meet the new players’ requirements as they will demand internationally certified companies.

Besides international certifications, companies also want more pipeline capacity in the upcoming Open Season, so the Government will re-launch an auction of capacity in the US border pipelines.

Last time the government put the sections up for auction, companies said they were interested but did not send proposals so the auction was declared null and void.

A specialist of the National Institute of Public Administration (INAP) Arturo Carranza, said that the key point for a successful Open Season is a particular requirement from the participating companies.

“Companies want Cenagas to make available more important pipelines such as the Los Ramones pipeline system,” he said.

Something else that the government needs to watch out for is the fact that experts came out to say that the draft guidelines for the extraction of unconventional resources through fracking are illegal.

“Article 29 Bis of the Water Law prohibits the infiltration of wastewater if it could contaminate aquifers. No regulation can be above the law. If it (the regulation) was approved, it could be considered as an act of absolute illegality,” said parliamentary adviser Miguel Ángel Montoya.

Helena Cotler, specialist at the Geo Research Center said the preliminary draft for the use of fracking was “surprising,” given that authorities did not host forums or consultation processes before announcing it.

Bottom-line: These are all equally important issues that the government needs to take into account if it wants the Mexican oil market to regain strength.

Authorities should continue to promote local labor training as it will ease operations of new companies. Communities will be happy as well, as they see benefits of the new projects.

Also, new players need well-trained people, but if companies do not find them in Mexico, they will bring them from other countries.

As for capacity in Pemex’s pipelines, if companies do not consider the offered capacity financially worth to invest in, then the government can re-launch the Open Season as many times as it wants and results will not be any better.

Los Ramones has always been attractive for companies and that is a fact that the government has to take into account if it wants to achieve better results in this tender.

More importantly, if it wants to overcome the bottlenecks that are threatening gas shortages.

When it comes to social unrest, fracking is indeed a controversial topic and the only way for the industry to ‘fight’ this is through education and by having an open dialogue with the communities.

Tags: cnh, energy reform, hydrocarbons, mexico, national hydrocarbons commission
Posted in LatAm, Energy, Energy