CNH Maintains Criteria, Technical Standards Despite Pandemic

Q: How would you describe the adaptations CNH made during the pandemic to maintain its reputation as an effective regulator?

A: The industry’s productive value chain was affected by the pandemic. Many service providers and contractors found themselves entering dry periods and many operators delayed their plans. CNH allowed a first period of suspension of terms for 124 days to the contracts that had associated compliance with mandatory activities, with the objective that they could execute them. Later on as we realized that the pandemic was going to last much longer than everyone expected a second period of 90 days was implemented. We began implementing broader flexibility when it came to delivery dates. It is important to highlight that no plans were modified as a direct result of the pandemic, apart from the delays. 

Our evaluation criteria and strict technical standards did not change due to the pandemic. Dates and investment volumes needed to be considered in a new context but technical specs had to be kept at the same level. One element that gave operators a great deal of flexibility is that many of their previously approved plans, particularly those for extensive exploration phases, happened over a long period of time. This allowed them to restructure their investment schedules so that they could reduce their planned investment in 2020 without affecting the larger overall investment that their plan represented, which was meant to be stretched out over three to four years. 

Q: What have been the most important developments regarding natural gas production?   

A: I would like to say there have been many developments but, quite frankly, I have failed to see any substantial changes in the matter, especially in regard to incentivizing natural gas production. The question of whether or not the Texas winter snap resulted in a complete interruption of natural gas supply into Mexico is more complex than it seems; it is both true and not true. It is true because there was a degree of localized shutdowns but there was never a complete interruption of service as the media narrative seemed to suggest. What this tells us is that midstream infrastructure needs to be  more appropriately distributed and diversified than we anticipated and that inputting national production into it might be more convenient than expected if a large enough effort is made to develop such production capabilities. However, there is definitely a new urgency to the subject of natural gas. I am hoping that this new urgency can lead us to a deeper debate about this commodity.

In general, I believe Mexico’s institutions have yet to grasp the importance of natural gas. There is an inkling of an understanding but not yet a complete one. For example, there is a lack of fiscal policies that directly incentivize natural gas production. There is a general rejection of fracking and I believe that will have to be reassessed. Fracking in Mexico could take place according to a new  extraction model, which would have  to be more efficient, profitable and environmentally friendly than that used in other parts of the world. Nevertheless, the openness to finding that new methodology needs to be here first. A willingness to debate the matter and invest in research are the first steps needed toward a future where Mexico can be self-sufficient in its natural gas supply. 

Some of the underlying legal issues need to be resolved as well. For example, the mining industry lobby in the state of Coahuila has paralyzed the efforts to tender areas for exploration. All of the unconventional richness of Texas has considerable geological continuity into Mexico’s northern states, so the resolution of legal controversies such as this one is essential, not just to tender areas for private operators but also to allow PEMEX to do its exploration and research work without external obstacles.        

Q: What have been the most important developments in terms of discoveries? 

A: I think there has been progress in this category. Private operators, in particular, have seen discoveries and exploration success increase significantly. As a result, reserve incorporation has become a much more important subject to tackle. We are seeing operators increase the scope and ambition of their exploration and development plans. 2021 has seen large investments as reflected by these plans. Many private operators are also reaching their production phases, which in turn can motivate the development of their exploration intentions. An example is Fieldwood Energy, whose proximity to production is also leading the company to increase its exploration investments. We are also seeing a great many reevaluations of areas that were previously thought to be depleted. These reappraisals are also producing positive results.

Héctor Moreira is serving a second term as CNH Commissioner. His previous experience includes serving as Deputy Minister for Strategic Planning and Technological Development at the Ministry of Energy and as the Deputy Minister of Hydrocarbons.