Canada, Mexico and the United States: Energy Competitors or Collaborators? Mexico s current challenges for remaining a major energy partner in North America Isidro Morales Director EGAP, Gobierno y Política Pública Tecnológico de Monterrey, State of Mexico campus Miami, April 23-24, 2012
Mexico is not only a major trading partner of North America, but a strategic oil and gas reservoir for the region. Top Sources of Net Crude Oil and Petroleum Product Imports: Canada (25%) Saudi Arabia (12%) Nigeria (11%) Venezuela (10%) Mexico (9%)
The US remains the major trade partner of Mexico. Mexican Crude Oil Exports by Major Countries. 1990-2010. Shares. Mexico-US exports of crude oil by types. 1990-2009. Thousand barrils daily. 1600 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% United States Spain India China Dutch Antilles Canada San José Agreement Netherlands United Kingdom Israel Portugal Other countries China Dutch Antilles Canada San José Agreement Netherlands United Kingdom Israel Portugal Other countries 1400 1200 1000 800 600 400 200 0 Olmeca Istmo Maya
Mexico has become addicted to oil revenues. Crude oil revenues remain crucial for Mexico, although they risk to be reduced in the years to come due to a decline in the volume of exports. Oil income remains crucial in Govt. fiscal revenues Oil revenues remain 15% (circa) of overall exports income, comparing with the revenues coming from the transport sector. Mexico's foreign income from main sources in the current account. Shares. 40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Foreign remittances Total Transport Exports Tourism Total Oil Exports Source: Banco de México
Furthermore, reserves and production risk to decline, and prospective resources have become expensive ENE; 2012 Source: PEMEX
The current administration has attempted to tackle the problem in terms of energy security: i.e. To boost oil and gas production and stop the depletion of proved reserves. 100% replacement of depleted reserves To increase rate of production to 3.3 MBD in 2025 Crude oil exports could lift from 1.2 to 1.7 Million barrels daily. Mexico. Evolution of crude oil consumption and exports under two scenarios. Thousand barrels daily 3,500 3,000 2,500 2,000 1,500 1,000 500-2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Crude oil to refineries Exports (Inertial) Exports (NES-2012) Source:
Mexico could significantly increase its conventional and non-conventional gas resources. Mexico. Estimated production of conventional natural gas. Million daily cubic feet Mexico. Anticipated production of shale gas. Million daily cubic feet 12000 3500 10000 3000 8000 6000 4000 2000 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Inertial scenario Scenario under NES-2012 Source: SENER, ENE-2012 2500 2000 1500 1000 500 0 753 1642 17951936 1470 1275 1042 342 0.00 120612771343 0.00 744 85895910481130 0.00 0.00 0.00 0.00 0.000 200440609 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Inertial scenario Scenario under NES-2012 Source: SENER, ENE-2012
Mexico could evolve from a net importer to a major net gas exporter Mexico. Estimated foreign trade of natural gas under two scenarios. Million daily cubic feet 4,000.00 3,000.00 2,000.00 1,000.00 EXPORTS IMPORTS (3,000.00) Source: SENER, ENE, 2012 Gross imports (inertial scenario) Gros imports (NES-2012) 2026 2025 2023 (2,000.00) 2024 2022 2021 2020 2019 2017 2018 2016 2015 2014 2013 (1,000.00) 2012 - Total conventional gas reserves amount to 61.2 TCF. Current recoverable shale gas reserves amount to 681 TCF.
Drilling costs remain uncompetitive for PEMEX at current gas prices while infrastructure must be enhanced. Should a new state company for developing unconventional oil and gas resources be created? A new regulatory approach is needed if the transmission grid is to be enlarged by private entrepreneurs. Plays Cost per well (Million dollars) Eagle Ford 4.0 to 6.5 Marcellus 3.0 to 4.7 Barnett South/Western Counties 1.6 ato 3.7 Barnett-Woodford 6.5 Emergente-1 (PEMEX) 11.9 Source: EIA, 2011 and PEMEX
However, Mexico must overcome a myriad of challenges in order to fulfill its targeted goals. But PEMEX must overcome a myriad of challenges. Future investments range 22.5 to 27.2 billion annual dollars and drilling operations from 1767 to 2258 annual wells. While annual investments in the business-asusual scenario amount to 22.5 billion dollars annually and drilling ranges on average 1,767 annual wells during 2012-2016, in the second scenario investments reach 27-2 billion annual dollars and the account of annual wells amount to 2258 during the same time period While developing shale gas could be cheaper and less risky than deep water oil, there are fiscal, infrastructure, environmental, and policy constraints for developing shale gas. A debate is currently taking place in the Mexican energy community, about the best policy options to develop shale resources: infrastructure incentives, fiscal incentives, to develop only humid gas resources, to create a whole new state enterprise, fiscally independent from PEMEX, in order to exploit non-conventional resources according to international best standards. According to specialists, it will take 10 years for Mexico to put on stream gas from its shale reservoirs.
Conclusions. In order to meet future oil, gas, and electricity requirements, the Mexican energy sector needs 22 to 27 billion dollars of annual investments in the oil and gas sectors, and an additional 6.2 billions annually in the power sector. In a scenario of declining net oil revenues, matching funds should normally come from the private sector, clearly permitted by current legislation. However, negative externalities impacting the energy sector i.e. the proliferation of pipelines smuggling and lawlessness spaces - reinforced by environmental, fiscal, institutional, policy and political concerns pending in deep water activities and the development of shale gas, will probably discourage private investments in the oil and gas sectors. For private investors, the most promising opportunity areas are in building capacity in the electricity sector, gas distribution and storage, and the development of shale gas.
Conclusions 2 A major policy change might come if a PRD (center left) administration comes to power at the end of 2012. Mr. López Obrador champions resource nationalism and the supression of oil exports. He claims to build 5 new refineries in order to supress gasoline imports. Services contracts with current investors might be revisited. PRI and PAN presidential candidates might countinue with current energy policies. There are uncertainties pending about the potential of gas exports: will they be feasible? If so, which would be the market outlets: the US, overseas? Will it be better for Mexico to increase imports from the US, at current prices instead of investing in Mexico s shale plays? There also is a great potential in Mexico s renewable resources: i.e. wind, geothermal, solar, but most of them are called to be developed by private firms. They still lack the market incentives in order to plan long term investments.