PPPs Can Boost Oil and Gas Sector – With Caveats

Q: What strategies does SL Intelligence employ to facilitate the soft landing of new ventures entering Mexico’s oil and gas sector?  

A: SL Intelligence supports any company that brings investment projects to Mexico. We accelerate the execution of these projects from the early stages of planning to the construction, as well as starting up and operating the infrastructure. We assist companies navigating the complexity of permitting and government relations at the federal, state, and local levels. We also manage community relations and obtain social licenses for these projects. Although investment projects generally have a positive impact on communities, it is crucial to mitigate any adverse effects and manage activist groups to ensure projects proceed smoothly. We also help evaluate the supply chain and the alliances needed to execute the project. 

Our differentiators include our extensive market experience, particularly in energy, infrastructure, and manufacturing. Our firm’s partners collectively have over 250 years of experience and have executed over US$7 billion in projects in Mexico. We have an in-depth understanding of the constraints that typically affect investment projects.

Q: What characteristics are driving companies to invest in Mexico?  

A: Mexico has competitive advantages, and there is still significant interest from companies to enter Mexico, driven by nearshoring and the country's geopolitical context. The administration, under President Claudia Sheinbaum, is making significant strides in engaging the private sector to leverage and support the government's infrastructure plan. This approach could be highly advantageous, if implemented correctly, and lead to growth in various sectors, such as oil and gas, power generation, and transportation. 

Mexico needs substantial infrastructure investment, not only in the energy sector but also in logistics, trains, ports, and road transportation to enhance competitiveness. Mexico is primarily a manufacturing country with a strategic geopolitical position, close to the largest market in the world: the United States. Mexico also has a skilled and competitive labor force.

Q: How does SL Intelligence support companies in the initial stages of a project?  

A: One of the main challenges manufacturing companies currently face is securing electricity supply. We support clients that require additional energy capacity due to our in-depth know-how of the condition of the transportation and distribution grid of the Federal Electricity Commission (CFE) distribution, as well as the requirements of the National Energy Control Center (CENACE) to plan for immediate, medium, and long-term energy loads. 

Another significant challenge in Mexico is security. We have experts with extensive knowledge of the risks in each state and can recommend security plans for companies to protect their operations and employees. 

Q: How are public-private partnerships (PPPs) expected to evolve under the new administration?  

A: Public-private partnerships are expected to be a key investment vehicle for the Sheinbaum administration for two main reasons. First, state companies like CFE and PEMEX will face restrictions financing long-term investment projects. Second, the government requires additional execution capabilities to construct and operate these projects.  In addition, partnering with the private sector is key for the incorporation of new technologies and best practices to ensure competitiveness and cost efficiency. The private sector can support both CFE in electricity generation and PEMEX across the hydrocarbon value chain, including natural gas production, processing, storage, and transportation, storage for refined products, and modernization of the petrochemical plants. It is imperative for both companies to increase energy efficiency and reduce greenhouse gas emissions. 

Q: How can PPPs be strengthened to benefit local communities?  

A: Public-private partnerships must be accompanied by social licenses that generate long-term benefits for communities hosting these projects. Hydrocarbons and mining projects must leave a lasting economic impact on local communities, encouraging economic growth and diversification so the local economy remains robust even after projects end. Strict sustainability and environmental care goals are also critical. The new administration will demand stricter compliance with environmental regulations. PPPs can help the government modernize legacy infrastructure to meet new standards that are essential for sustainable development of energy projects.

Q: How will proposed regulatory changes affect Mexico’s oil and gas sector?

A: The legal framework and energy policy will grant PEMEX and CFE advantages over private companies and an increase in market share and state control.  Another reform is advancing toward the elimination of certain autonomous regulatory bodies including the National Hydrocarbons Commission (CNH), the Energy Regulatory Commission (CRE), and the Federal Economic Competition Commission (COFECE).  These regulatory bodies play a pivotal role in overseeing and regulating energy markets and projects. If this reform moves forward, it is essential to transfer and preserve their key functions to ensure transparency, accountability, fair competition, and impartiality, particularly for the success of public-private partnerships.

A new fiscal regime has been introduced for PEMEX, simplifying its tax obligations by consolidating multiple taxes into a single duty set at 30%, or 11.6% for non-associated gas, starting in 2025. 

In addition, in September the CRE published the General Administrative Provisions on Electromobility and approved the Provisions for the Integration of Electric Energy Storage Systems. These regulatory developments will have an impact on the electricity and hydrocarbon sectors.

Q: What are the main challenges affecting the oil and gas supply chain?  

A: PEMEX’s supply chain faces significant challenges, with delayed payments being a primary concern. The 2025 federal budget includes several measures aimed to address financial challenges faced by PEMEX. Regularizing payments and creating new financing alternatives is essential for new public-private partnerships to be successful. 

Q: What key steps are necessary to achieve Sheinbaum’s energy targets for 2030, and what role will the private sector play in achieving these goals?  

A: Maintaining PEMEX's production platform at 1.8 million barrels per day is a significant challenge that demands substantial investments, the resolution of technological hurdles, and improved efficiency in managing a portfolio of smaller, more complex fields. This highlights the critical role of public-private partnerships, especially in unconventional and complex fields such as Chicontepec, where private companies can contribute expertise, advanced technology, and cost-efficiency.

The government also aims to develop all of Mexico’s energy potential, and is considering renewable energy projects like geothermal. A broad energy strategy is vital for the country's long-term energy security and sustainability.

Q: What challenges does PEMEX face in transition from an oil and gas company to an energy company?  

A: This transition presents several challenges, including the need for substantial financial and technical support and a cultural change to manage these new assets effectively. The fastest way for PEMEX to develop the capabilities and expertise required to enter the renewable power generation sector is through partnerships with private companies that bring innovation, advanced technology, and operational efficiency. Building a strong portfolio of partnerships will help PEMEX leverage the strengths of private partners and mitigate risks. A clear framework for public-private partnerships will be crucial to fostering trust and achieving shared objectives. Good coordination with the Ministry of Energy (SENER) and CFE will also be essential to align efforts, optimize resources, and drive Mexico’s broader energy transition successfully.

Q: What advances has the hydrocarbons sector made in adopting ESG practices, particularly concerning methane reduction and emissions control?  

A: The hydrocarbons sector in Mexico has made significant strides in adopting ESG practices, particularly in methane reduction and emissions control. New projects have adhered to the stringent standards set by the National Hydrocarbons Commission (CNH) for natural gas utilization and comply with the Security, Energy, and Environment Agency’s (ASEA) methane emissions control program. Companies are making substantial investments in electrifying operations, enhancing energy efficiency, and incorporating renewable energy sources into their processes. Additionally, most new projects led by private operators have fully integrated ESG standards, setting clear and comprehensive goals to ensure sustainability, reduce environmental impact, and align with global best practices. These efforts collectively reflect the sector’s commitment to a more sustainable future.

Q: What are SL Intelligence's objectives for 2025?

A:  We plan to expand our consulting services in renewables and electricity storage, as we anticipate these sectors will grow faster than others. Additionally, we aim to consolidate projects for clients interested in participating in public-private partnerships, as well as those implementing innovative concepts for PEMEX, such as gas-to-ammonia modular plants to reduce gas flaring and the use of AI for the management of fields, platforms, onshore plants, and marine terminals.

SL Intelligence is a consulting firm established in 2011 to accelerate and ensure a soft landing of new ventures and capital projects in Mexico. It works hand in hand with clients to develop innovative solutions.