Tuesday, March 03, 2009

Oil: 170 new sites give Mexico's oil and gas industry new hope

Veracruz state Governor Fidel Herrera Beltran, 26 Feb 2009

Mexico has announced the allocation of more than 170 new sites for oil and gas development in an area in the country's northeast region. This comes at a time when production at the country's main field is falling dramatically, leading some analysts to say that the oil exporter could become an oil importer within five years. At least one Mexican governor is disputing that grim vision and calling for more investment in energy development.

Coming before an audience of energy industry representatives and academics at Rice University's Baker Institute for Public Policy, the governor of Mexico's Veracruz state, Fidel Herrera Beltran, hailed the new opening in his nation's oil sector.

"It is a great time to invest in Mexico in areas that were closed or not open before," said Fidel Herrera Beltran.

Beltran said an energy reform bill passed by the Mexican Congress last year after heated debate has opened the way to some limited partnerships with foreign companies in Mexico's oil and gas fields. The Mexican constitution establishes all energy resources as state owned and, until now, the government-owned oil company, Pemex, has offered only contract work to outside companies.

But Mexico's situation has changed in recent years as production at its main field, called Cantarell, has declined. Since Pemex lacks the technology to explore and develop deep-water fields, some international experts have said the country's oil exporting days were coming to an end.

But, in a VOA interview, Governor Beltran hailed the development of newly discovered oil deposits in Chicontepec in his state that may offset the decline in other fields.

"The acknowledged amount of oil and gas is about four times what we had in Cantarell," he said. "So that at the same time Cantarell is running out, Chicontepec will be taking off. Not only in the continental area, but also offshore drilling is at this very moment taking place."

But the recent reform does not allow joint partnerships with private oil companies just yet and that may complicate the Chicontepec investment picture. Beltran says state-owned companies like Brazil's Petrobras may be among the first invited in to help Mexico develop its assets.

"Mexico is now open to joint ventures with other state-owned oil companies such as Petrobras," said Beltran. "In the offshore drilling, we will necessarily have partners to do that. Certain areas of the oil chain are open to investment to bring in through Pemex or with Pemex technology and investment."

But most international oil analysts are not as optimistic about Mexico's plans to develop new fields. Some still believe the country will have trouble meeting its own rapidly rising demand for oil and soon become a minor exporter.

Baker Institute energy analyst Amy Jaffe, who helped organize Thursday's conference on energy policy in Latin America, says much depends on what Mexican political leaders do next.

"I think the fundamental principle is what becomes Mexican government policy," said Amy Jaffe. "Because we have seen over the last few years the lack of ability for the government to reform Pemex and to come up with a productive system for investment."

Jaffe says that if the initial, limited reform passed last year is not followed by more substantive reforms and a clear opening to outside investment, Mexico could cease being an oil exporter and even become an oil importer to meet its own domestic needs.

"That is going to have severe fiscal consequences for the government and maybe that will help focus peoples' minds on why reform is necessary," she said.

Mexico is currently one of the top oil exporters to the United States, but Mexicans pay more at the gasoline pump than their neighbors across the border because Mexico lacks refinery capacity and sends much of its crude to other countries to be refined.

Governor Beltran says Mexico is on the right path to reforming its energy sector and is also developing a variety of other sustainable energy sources including ethanol from sugar cane, geothermal and wind power.

By: Published with the permission of Voice of America
Published by Mike Hitchen, Mike Hitchen Consulting
Putting principles before profits