Leonardo Beltrán
Undersecretary of Planning and Energy Transition
View from the Top

Creating a Fair Market for All Types of Energy

Thu, 01/21/2016 - 17:23

Q: Is Mexico on track to meet the 2018 targets set by SENER at the beginning of the current administration?

A: Mexico is united about the fact that the energy sector should be an engine of economic growth. For that to be the case, we had to set up the right conditions so that this sector could act as an economic lever. Given the chosen trajectory, the public sector was not going to be the only responsible party. Accomplishing this goal would require a larger effort by all players. The goal was set in order to democratize productivity and promote growth, which is exactly what is reflected in the National Development Plan and the specific sectorial programs that spawned from it. The energy sector in Mexico has a history, infrastructure, and a model we have to take advantage of. Previously, the public sector was the main driver, but our work will now be complemented by the strength of the private sector. This is basically what the Energy Reform is about. It creates the conditions to match and align incentives while creating opportunities in other markets that were absent when the public sector was the only driver of growth in the energy sector. The Energy Reform seeks to generate this growth by 2018. The timeline for the increase in hydrocarbon production has already been published, with 500,000b/d to be added by then. For the electricity sector, we have also set up conditions for new participants to develop both conventional and unconventional renewable resources. This will create markets and regional growth in both of these areas, as different states will welcome investors in different sectors. We are also generating the conditions to make Mexico an attractive investment destination and create employment.

Q: How is SENER ensuring that Mexico will not be facing an energy deficit in the future?

A: We did some diagnostics at the beginning of this administration with the participation of all stakeholders in order to reach a consensus regarding the energy sector. We mapped the situation and found ourselves in a position to decide upon an energy model for Mexico. We saw that oil and gas production reached a peak in Cantarell in 2003-2004, which was accompanied by a peak in public spending. However, when looking at a graph of public spending versus oil and gas production, we notice that the investment curve goes upwards while there is a downward trend in production. This obviously raises the question of what is wrong and the answer is simple: there is not enough public investment in the upstream segment. If we want to develop Mexico’s resources so that this situation does not repeat itself, we need private investment. In order to attract private investments, we had to generate the conditions for private investors to come in and help us develop the oil and gas and renewables sectors.

Q: The Energy Reform privileges the use of natural gas as a transition fuel, but what is SENER doing to ensure that Mexico’s objectives for other energy sources are met?

A: We listened to different stakeholders, but it is worth noting that the different sectors of the Mexican energy industry are at different stages. The oil and gas sector is well established yet the renewables industry is not that developed around the world. Mexico has these two elements and will not choose between natural gas or renewables. Both are equally important to the country’s energy future. The Energy Reform aims to make sure that the country’s energy mix is diversified. We should not look away from any of the natural endowments that we have, as they all have crucial parts to play. We have created a market which will ensure the same conditions for all actors, either for natural gas or in renewables. Furthermore, we created clean energy certificates to cater to the state of development of traditional energy resources such as oil and gas. The point of these certificates is to level the playing field. The goal of the new regulator, CENACE, is to make sure that these rules are followed and that there is a leveled playing field for everyone. As an autonomous organism, CENACE will avoid all conflicts of interest and knows that its role is to ensure that everyone can compete on an even keel. This focus on fair play will also lead to a market with clean energy certificates, which will make it attractive to invest in renewable energy. CENACE also has the responsibility of planning for the market, while including the externalities of using certain fuels. Taking this into account, there will be a punitive fee for the use of traditional fuels for industries. This will be part of generating conditions to ensure a level playing field: clean energy certificates, externalities, a strong regulator, and aligning incentives