The Mexican Energy Reform of 2013 - Center on Global ... · Center on Global Energy Policy Columbia...
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Center on Global Energy Policy Columbia University
April 17, 2014
The Mexican Energy Reform of 2013
Adrian Lajous
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Topics to be covered
• Nature, objec-ves and scope of energy reform • Drivers of the reform effort • Principle unresolved issues • Implementa-on of reform • Main risks • Some implica-ons
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The begining of the end of a 75/53 year State energy monopoly
Constitutional Amendment
Objec-ves
• Introduc-on of compe--on
• Opening of oil and electricity to private investment
• Mantaining State ownership and control of subsoil resources
• Selec-ve priva-za-on with limited Pemex and CFE asset sales
• Moderniza-on of State energy companies
• Reduc-on of direct government interven-on in energy sector
• Development of new regulatory frameworks and ins-tu-ons
Scope
Upstream Midstream Downstream
Oil and natural gas Electricity
Genera-on Transmission Distribu-on
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Art. 25 Establishes exclusive ownership and control of State companies that
perform produc-ve ac-vi-es.
Art. 27 E&P ac-vi-es can be carried out under licenses (asignaciones) granted to NOC and contracts with NOC and private companies; concessions are prohibited
Art. 28 Defines the following ac-vi-es as strategic: • Planning and control of na-onal electricity system • Transmission and distribu-on of electricity • Hydrocarbon E&P
Recognizes at a Cons-tu-onal level:
• Regulatory Commissions (CRE + CNH) • Mexican Petroleum Fund
Transi4onal ar4cles
Give specific instruc-ons with respect to the content of secondary legisla-on
Cons4tutu4onal Amendments
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Drivers of Mexican energy reform
• Slow economic and produc-vity growth • Low investment in rela-on to GDP and in public goods • Fall in crude oil produc-on and exports • Natural gas produc-on stagnant and 2012-‐13 supply crisis • Increasing oil product and natural gas imports • Uncompe--ve electricity tariffs
• Public finance constraints and financial weakness of the State
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6
Mexico’s annual GDP growth from 1950-‐1980 was more than twice as fast as in the past three decades
Source: McKinsey Global Ins-tute
GDP growth rates, based on 2012 US$ Compound annual growth rate, %
6.4
1970-‐1980
6.6
1960-‐1970
6.5
1950-‐1960
6.1
2.4 1.8
1980-‐1990
1.8
2000-‐2010
3.5
1990-‐2000
Rapid and stable growth Recurrent economic and financial crisis
Low growth, stable prices
Graph 1
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Mexico: investment flows Graph 2
60.4 63.6
98.6
85.6
40
50
60
70
80
90
100
110
2010 2011 2012 2013
Direct foreign investment
Direct foreign investment (current US billion dollars)
Source: Banco de México
Gross fixed capital formation (percent of GDP)
Source: INEGI
6 5 5 5 0
5
10
15
20
25
2010 2011 2012 2013
20 21 22 21
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Mexico: crude oil production, 2003-2013 (million barrels per day)
• 25% reduc-on from 2004 peak • Fall due to Cantarell`s rapid
decline • Par-al compensa-on by increase
in Ku-‐Maloob-‐Zaap and offshore Tabasco
• Rest of country essen-ally flat • Low decline rate since 2010, but
underes-mated due to measurement issues
Graph 3
0
0.5
1
1.5
2
2.5
3
3.5
4
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Heavy
Light
Total
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Mexico: exports of crude oil to the US, 2003-2013 (Thousand barrels per day)
• Mexican crude exports have contracted 682 th b/d from their peak, a 36% drop.
• Fall of heavy crude oil exports due to Cantarell`s rapid decline
• Recent displacement of Isthmus
and Olmeca crude imports in US Gulf Coast
• Poten-al displacement of Maya
crude imports via Keystone XL, other pipelines and rail
Graph 4
0
200
400
600
800
1000
1200
1400
1600
1800
2000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Total
US
Heavy
Light
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Mexico: oil imports, 2003-2012 • Value of product imports is 51%
of crude oil exports
• Share of exports to Mexico is 15% of total US product exports
• Product imports should con-nue to increase if economic growth accelerates
• Import growth may be tempered by elimina-on of subsidies
• Domes-c product supply may increase due to beier yields, change in crude slate and refinery reconfigura-ons
Graph 5
% domestic requirements Th b/d
48
27
33
375
107
80
Gasoline
LPG
Diesel
(Bcfd) natural gas 2.3
28
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Mexico: natural gas production and consumption (Billion cubic feet per day)
5.2
5.4 5.4
5.2
5.1 5.1
5
5.1
5.2
5.3
5.4
5.5
2008 2009 2010 2011 2012 2013
Net production
5.3 5.3 6.5
5.6 5.7 5.7
0
1
2
3
4
5
6
7
2008 2009 2010 2011 2012 2013 P
Domestic dry gas sales
1.2 1.2 1.4
1.7
2.1 2.3
0
0.5
1
1.5
2
2.5
2008 2009 2010 2011 2012 2013
Net imports
2.8
2.9 2.9
3.1 3.1
3.2
2.75 2.8 2.85 2.9 2.95
3 3.05 3.1 3.15 3.2 3.25
2008 2009 2010 2011 2012 2013 P
Gas for power generation
Graph 6
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Mexico: natural gas consumption, by sector, 2003-2012 (billion cubic feet per day)
• 50% of power genera-on used natural gas in 2012, up from 29% in 2003
• 70% of total consump-on increase due to electricity sector
• 47% of natural gas was consumed by the electricity sector in 2012
• Industry improved energy efficiency significantly
Graph 7
0
1
2
3
4
5
6
7
8
2004 2006 2008 2010 2012
Electricity
Oil
Industry
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Mexico: power generation, 2003-2012 (twh)
• Extensive subsidies and cross-‐subsidiza-on
• High losses mainly due to thel
• High cost for industry affects manufacturing industry compe--vness
• Fundamental tariff redesign is impera-ve
Graph 8
0
50
100
150
200
250
300
350
2004 2006 2008 2010 2012
Total
Self-‐supply
Other
Industry
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14
Cost of power in Mexico is rela4vely high
Source: McKinsey Global Ins-tute
Commercial electricity cost, 2011–12 Cents per kWh
2
3
4
6
6
6
7
7
9
11
12
13
13
17
United States
Qatar
Iceland
Argen-na
Norway
Ecuador
Peru
Bolivia
New Zealand
India
Mexico
Switzerland
Spain
Brazil
+73%
Graph 9
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15
Graph 10
Mexico: oil revenues and taxes, 2013
Pemex taxes
Pemex E+P taxes
Share of federal revenues
Share of GDP
Share in income before taxes
37
67
Share of total revenues
91 5.9
9.9
15.8
Other
Pemex
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• Cons-tu-onal amendments were the first step of an ambi-ous and lengthy process
• Secondary legisla-on package has yet to be sent to Congress
• From entrenched State monopolies to a more compe--ve environment with private par-cipa-on
• Establishment of a new oil regime with own: rules, ins-tu-ons, players, paierns of engagement and policy op-ons
• Risk that exuberant expecta-ons can be frustrated
• Mid/term elec-ons in July 2015 may delay cri-cal decisions
• Outcomes of reform are difficult to predict and unintended consequences are sure to arise.
Reform process
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New Mexican energy sector structure Graph 11
Department of Energy
Department of Treasury
Bank of Mexico
Pemex
CFE
State Produc-ve Companies
Mexican Oil Stability and Development Fund
Na-onal Energy Control Center
Na-onal Natural Gas Control Center
Na-onal Safety and Environmental Protec-on Agency
Energy Regulatory Commision
Na-onal Hydrocarbon Commision
Descentralized State En--es Coordinated Regulatory Bodies Public Trust
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Round zero: initial oil and gas asset allocation to Pemex
Pemex request
• Producing fields
• Commercial discoveries, including undeveloped deepwater assets
• Retains small share of es-mated shale resources
• Relinquishes major areas in Chicontepec
First step in upstream reform
Timing 2014 Pemex request by March 21
Sener allocation by September 17
Allocation criteria Producing fields & exploration areas
• Prove capacity to operate efficiently and competitively
• Demostrate operative, technical, financial and execution capabilities
Pemex must compete for additional acreage in subsequent
bidding rounds
Graph 12
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Pemex: request of hydrocarbon assets in round zero
Prospective resources
Reserves
82 63
Onshore
Shallow water
29
Deepwater
15
Shale
97
1P
83
2P
75
3P
Graph 13
(percent)
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Some key industry issues
Downstream
• Retail prices that reflect transport costs • Free third party imports and qualifica-on of importers • Transi-on to compe--ve pricing
Midstream
• Common carrier, open access, eminent domain differences in gas and liquids pipelines
• Pemex role in liquids pipelines and logis-cs infrastructure • Regula-on of oil product road transport
Upstream
• Concessions vs license contracts • Pemex joint venture par-cipa-on in round zero assets
and in other bidding rounds • Contractual variability and adequacy
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• Priority given to mobilizing upstream private investment
• Key ini-al tasks are the execu-on of round zero and the design of new contracts
• Government expecta-on of signing ini-al round of contracts in the first half of 2015 might not be realis-c
• Energy Department and regulators are not adequately equipped for the challenge of reform
• Must deploy implementa-on strategy and develop tac-cal posi-oning
• Mul-tude of tasks require high selec-vity
• Government must transmit clear sense direc-on, with some quick wins to mark adance
Implementa4on strategies, 4ming and sequencing
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Electricity Sector Reform
Regula4on • Energy Regulatory Commission (CRE) will be the regulator • Na-onal Center for Energy Control will be the independent system operator • Centralized wholesale energy markets • Open access to transmission and distribu-on grids on a cost of service basis
Private sector • Permi-ng regime for private power genera-on • Contractual arrangements for financing, building, mantaining, managing,
opera-ng and expanding transmission and distribu-on infrastructure on behalf of the State
State sphere • Planning and control of na-onal electricity system • Transmission and distribu-on will remain a public service • CFE will transit from decentrailized State en-ty to a State company that
performs produc-ve ac-vi-es
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Mexico: merchandise exports, 2013 (percent)
• Explosive growth of exports since 1995
• Growing share of manufacturing • Predominance of automobile and
auto-‐parts • High share of exports to US (82%)
81
Oil 15
Other 4
Manufacturing
Total: 380 billion dollars
Graph 14
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Mexican manufacturing exports to U.S., 2013 (percent) • Significant overall market share
increase in 2009-‐13 (2.2%) • China`s share increased by 2.4 but
its level is almost twice thatof Mexico
• Share of local content in exports
stable, not growing • Low value added exports typical of
reassembler • Weak supply chain integra-on
• Slow growth of domes-c demand for manufactures
Source: UBS
NAICS Classification
Share of manufacturing
exports
Market share of
US imports
Total 81.9 12.3
Transport 28.2 23.6
Computer & electronic 18.8 14.6
Electrical equipment 7.6 23.7
Machinery 5.6 10.7
Primary metals 3.9 11.5
Fabricated metals 2.5 11.1
Food 2.3 11.7
Other 13
Table 1