News Article

Achievements of the Energy Reform and How to Consolidate Them

Thu, 07/19/2018 - 13:48

Energy Agency’s model for securing energy supply is an example that Mexico could replicate to address its own energy needs, specifically with natural gas, Rosanety Barrios, Head of the Industrial Transformation Policy Unit at the Deputy Ministry of Hydrocarbons, told the Mexico Oil & Gas Summit 2018 on Wednesday at the Sheraton Maria Isabel hotel in Mexico City.

Speaking on the first day of the two-day summit, Barrios said that “after the shale gas revolution in the US, which started in 2008, Mexico was not prepared to compete against the lower production costs that its northern neighbor enjoyed thanks to its technology access.” She pointed out that the US continues to have a comparative advantage in terms not only of E&P activities related to shale gas, but also in terms of its midstream infrastructure to market that production and even the US refining capacity compared to the Mexico, which, according to Barrios, “is inefficient given its lack of maintenance and specialization.”

Barrios referred to the IEA’s model to secure energy supply. She mentioned that “the incumbent administration had, since the beginning, implemented critical alerts related to natural gas supply because Mexico is a country used to importing natural gas from Texas’ basins. This comfortable reality never allowed the development of a local natural gas industry.” Barrios added: “This is why the Ministry of Energy’s priority is to incentivize the proper development of a local natural gas market. How? By liberalizing market prices, granting access to current storage, distribution and transportation infrastructure and consolidating symmetry between policymakers and regulators to have clear rules.”

According to Barrios, this mandate to create and consolidate a natural gas market should be everyone’s responsibility, referring to the Ministry of Energy, CNH, CRE and the industry itself. She mentioned that “Mexico is some years behind its northern neighbor but, nevertheless, the country is in the right moment to take advantage of the untapped opportunities present thanks to the Energy Reform.”

Barrios also highlighted Mexico’s first open season, related to infrastructure, that opened the door to private and public investment that was previously only in the hands of PEMEX and CFE. “Private players are able to invest, co-invest and develop strategic projects for the sake of the country’s energy supply,” she said, pointing out that “the incumbent administration built 7,521km of new pipelines, 66 percent more than was completed in the previous administration, and it is committed to the continued development of strategic projects to secure energy supply for years to come.”

Developing the country’s storage capacity is another area that requires attention, Barrios said, particularly in regions where fuels or natural gas are greatly needed. “CRE has announced 56 new storage projects. This does not mean that all these projects will see the light but, what we can project in the short term is that the industry in general is more conscious about Mexico’s lack of strategic storage installed capacity.” She also highlighted the opportunities further along the value chain. “In terms of retail fuelsl, Mexico has 46 new brands with 3,061 service stations across the country, representing 26 percent of the total number of service stations.”

Barrios concluded her presentation with a nod to the incoming administration of President-elect Andrés Manuel López Obrador. “Consolidating the achievements of the Energy Reform takes time,” she said. “Mexico has taken the first step and the country needs to continue moving forward. Every player involved in this industry needs to understand that this is a group effort and the president-elect’s new administration should understand this message and keep working to incentivize the growth and health of the country’s energy supply.”