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Enrique Ochoa on Mexico's Energy Reform

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Today the Adrienne Arsht Latin America Center welcomed Mexican Undersecretary of Energy Enrique Ochoa Reza as the keynote speaker at the launch of the center’s first publication, Mexico Rising: …

Today the Adrienne Arsht Latin America Center welcomed Mexican Undersecretary of Energy Enrique Ochoa Reza as the keynote speaker at the launch of the center’s first publication, Mexico Rising: Comprehensive Energy Reform at Last? The undersecretary provided thoughtful and informative commentary supported by a PowerPoint.


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  • 1. Mexico’s Energy Reform Enrique Ochoa Reza, PhD Undersecretary of Hydrocarbons Ministry of Energy December 19, 2013 www.reformaenergetica.gob.mx
  • 2. Despite an increase in investment in exploration and extraction, Mexican oil production has declined from 3.4 million barrels per day in 2004 to 2.5 million in 2012. Investment in exploration and extraction (Billions of dollars) 25 20.7 3.4 20 3.0 15 11.7 2.5 10 4.7 Oil Production (Million of barrels per day) 1.5 5 0 Price of Mexican Crude Export Mix (Dollars per barrel) Sources: Average price of the Mexican Crude Export Mix, PMI Comercio Internacional 1997 – 2012. Production: Pemex Institutional Database, 1997– 2012. Investment: Pemex Annual Statistics, 1997-2012. 2
  • 3. Between 1997 and 2012, natural gas imports increased from 3% to 30% as a percentage of national consumption; this trend has deepened since 2008, due to the decrease of the price of natural gas in North America. 9,000 7,792 8,000 Natural Gas Consumption 7,000 Million cubic feet per day 8,007 (100%) 6,534 6,000 5,000 4,576 (100%) 4,000 4,467 5,651 (70%) (97%) Natural Gas Production 2,356 (30%) 3,000 Natural Gas Imports 2,000 1,000 1,258 109 (3%) 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013* * January – July, 2013. The “Natural Gas Consumption” line reflects the addition of Pemex’s gas production and total imports. The “Natural Gas Production” line reflects Pemex’s total natural gas production, including the gas it uses in its industrial processes and the supply to final consumers. Source: Mexican Energy Ministry, Energy Information System, 2013. 3
  • 4. Gasoline imports represented 25% of total consumption in 1997; by 2012, that percentage had increased to 49%. 900 Gasoline Consumption Thousands of barrels per day 800 811 (100%) 752 700 600 503 Gasoline Production (100%) 500 455 416 (51%) 400 376 300 200 395 (75%) (49%) Gasoline Imports 127 (25%) 100 54 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Pemex, annual average 1997-2012. 4
  • 5. In 1997, Mexico imported 41% of the petrochemicals it consumed; in 2012, 66% of demand was met with imported petrochemicals. 22.09 21 (100%) 19.36 18 Billions of dollars 14.47 Demand 15 (66%) 12.72 12 Net Imports 7.62 9 (34%) 6.09 6.64 (100%) 6 Production 3.62 (59%) 3 2.47 (41%) 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: Mexican Energy Ministry, with data provided by Pemex-Petrochemicals and the Mexican Central Bank. 2012 5
  • 6. New Oil and Gas Model • For the first time since 1960, the Mexican oil and gas model embedded in article 27 was amended. The reform enacted 53 years ago, closed most of the hydrocarbons sector to private participation. • Today's energy reform is due to President Enrique Peña Nieto's leadership and the Mexican Congress' commitment by voting the reform with over 2/3 of its members present in both houses. • The constitutional amendment was declared complete yesterday by the Mexican Congress once 24 State Congresses voted it favorably (16 of 31 were needed). More States are expected to approve the reform in the near future. 6
  • 7. Reform to articles 25, 27 and 28, with 21 transitory articles allow private investment in up, mid and downstream. Oil and Gas Reserves The Mexican State, through SENER, manages the country’s oil and gas reserves (selection of bidding areas) Exploration and Extraction Entitlements granted by SENER to Pemex (Round Zero) Service, profit/production sharing and license contracts, awarded by the National Hydrocarbons Commission (CNH) to Pemex and/or the private sector Refining and Petrochemistry Permits for refining and gas processing (basic petrochemistry), granted by SENER to Pemex and/or the private sector Transportation, Storage, Distribution and Commercialization Permits for all transportation, storage, distribution and commercialization activities, granted by the Energy Regulatory Commission (CRE) to Pemex and/or the private sector 7
  • 8. Round Zero for Pemex1 1 Pemex will submit to the Ministry of Energy, the entitlement applications for the exploration areas and the production fields that it is able to operate through entitlements. 2 (90 days) The Ministry of Energy, with technical assistance from the National Hydrocarbons Commission (CNH), shall review Pemex’s request, and issue the corresponding resolution. 3 Pemex will maintain exploration entitlements in those areas where it has made commercial discoveries or exploration investments. (3-5 year period) (180 days) 6 The Ministry of Energy shall determine the technical and contractual guidelines of the bidding round, the Ministry of Finance will establish the fiscal terms, and the CNH shall conduct the bidding round to select the contractor. 1. Transitory Article 6 5 Pemex may propose to the Ministry of Energy for its approval, the migration of the allocated entitlements into new contracts. 4 Pemex will maintain extraction entitlements in fields in production. 8
  • 9. Exploration and extraction legal frameworks in the top 20 oil producing countries Ranking 2012 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Country Russia Saudi Arabia United States of America China Canada Iran Iraq Kuwait United Arab Emirates Mexico (Before the Reform) Mexico (With the Reform) Venezuela Nigeria Brazil Angola Norway Kazakhstan Libya Algeria United Kingdom Qatar Production (2012) mmbd 10,427 9,813 6,401 4,122 3,127 3,000 2,918 2,754 2,653 2,548 2,548 2,479 2,092 2,061 1,756 1,618 1,583 1,402 1,165 890 741 Concessionary/Contractual Framework Concessions and production sharing contracts Concessions Concessions Production sharing contracts Concessions Profit sharing contracts Profit and production sharing contracts Service contracts Concessions Service contracts Service, profit or production sharing contacts and licenses Concessions Concessions and production sharing contracts Concessions and production sharing contracts Concessions, profit and production sharing contracts Concessions Concessions and production sharing contracts Production sharing contracts Concessions Concessions Production sharing contracts Source: World Rating of Oil and Gas Terms; PFC Energy, Van Meurs Corporation and Roger Oil & Gas Consulting. Production: Oil and Gas Journal (crude oil). 9
  • 10. Oil and Gas Exploration and Extraction Contractual Framework2 2 • Technical guidelines of the bidding rounds. • Technical design of contracts. 1 • Block selection, with technical assistance of the CNH. 3 4 • Conducts the bidding rounds. • Decides on the winning bids. • Fiscal terms of contracts. 7 6 • Mexican Petroleum Fund for Stabilization and Development makes payments and manages government cash flows. 2. Transitory Article 10 • Technical management of contracts. 5 • Awards and signs the contracts on behalf of the Mexican State. 10
  • 11. Mexican Petroleum Fund for Stabilization and Development • Public trust fund managed by the Mexican Central Bank,3 with a Technical Committee: the Finance Minister (Chairman), the Energy Minister, the Central Bank Governor, and 4 independent members nominated by the President and ratified by 2/3 of the Senate.4 1 3 2 Expenditure Budget of the Federation - PEF (Constant at 4.7% of GDP) Long-term savings (Up to 3% of GDP) If the balance exceeds 3% of GDP, at least 40% of the excess balance will be allocated to long-term savings Up to 10% Universal pension system Up to 10% Science & technology and renewable energy projects Up to 30% Oil and gas project investment vehicle and infrastructure development Up to 10% Scholarships, connectivity enhancement projects and regional industrial development 3. Constitutional Article 28 and Transitory Article 14 4. Transitory Article 15 11
  • 12. Transparency and anti-corruption policies in oil and gas contracts5 1 3 2 Bidding rounds and their guidelines will be public. Transparency clauses will be included in oil and gas contracts. 4 Full disclosure of all payments associated to oil and gas contracts. External audits to supervise cost recovery and accounting aspects. The reform mandates the establishment of legal mechanisms to prevent, investigate, identify and punish actions or omissions against the law, as well as acts of corruption in general in the energy sector.6 5. Transitory Article 9 6. Transitory Article 21 12
  • 13. Mexico’s Energy Reform Enrique Ochoa Reza, PhD Undersecretary of Hydrocarbons Ministry of Energy December 19, 2013 www.reformaenergetica.gob.mx