MEXICO SPONSORED ARTICLE
Towards a second generation of energy reform
Juan Carlos Serra and Fernando Ortiz of Basham Ringe y Correa, Mexico City, analyse the lessons that can be learned from energy reform in Argentina, Brazil and Colombia
nationalism and misunderstood sovereignty. The oil industry in Mexico is ruled by the constitutional
T
he issue of regulation of the oil industry throughout the history of Mexico has always been considered as controversial, because of items related with ideology,
Figure1: PEP 2013 Quarterly Report
principles set out on Article 27 of the Mexican Constitution, which establishes the principle of direct control of the Na- tion over our hydrocarbons resources. The direct ownership implies that the Nation reserves for itself not only the own- ership of the resource but the manner in which it should be exploited. Therefore, our constitution provides that the Na- tion shall carry out the exploitation of hydrocarbons, pur- suant to the terms set out in the Regulatory Law to Article 27 of the Mexican Constitution regarding Petroleum Affairs (Regulatory Law); the same law that suffered on November 28 2008 the former president’s latest reform, arisen from the so called “Calderon Energy Reform” (2008 Energy Reform).
The 2008 Energy Reform had from its genesis as one of its main objec-
tives the strengthening of Petroleos Mexicanos (Pemex) by giving greater management autonomy and transparency in its operation activities. The other main objective was the creation of a new legal framework applicable to debt, budget and procurement; this had the aim of stopping declining rates of crude and gas production and to increase reserve replacement rates.
However, it is well known among Mexican energy experts, that the 2008
Energy Reform was considered incomplete due to the fact that the applica- tion did not bring in practical terms for Pemex or an increase in our oil and gas production; and in consequence did not bring flexible rules to Pemex operation schemes. As an example of this, and according to the Pemex Ex- ploración y Producción 2013 quarterly report (PEP 2013 Quarterly Report), oil production from January to March 2013 stood at 2,525 million barrels per day (mbpd); while gas production stood at 6,381 million cubic feet per day (mcfpd). If we compare such data with the production made during
60 ENERGY & INFRASTRUCTURE | LATIN AMERICA 2013 “
Oil production (mbpd) Gas production (mcfpd) Crude oil distribution (mbpd) Gas distribution (mcfpd) Gas distribution (mcfpd)
2009 2,601 7,031 2,594 5,786 90.1
2010 2,577 7,020 2,549 5,796 94.0
2011 2,553 6,594 2,515 5,583 96.2
2012 2,548 6,385 2,479 5,335 97.9
years 2009 – which was the year that followed the enactment of the 2008 Energy Reform – up to 2012, it is evidenced that there was a decrease in our oil and gas production (See Figure 1).
Likewise, another reason that should be taken into consideration is that
the 2008 Energy Reform did not disrupt any constitutional principle that rules the manner in which the Nation will perform the activities that com- prise the so called National Oil Industry; therefore the barriers for the con- vergence of public and private capital still exist in the Mexican Constitution and the Regulatory Law.
Barriers in the Mexican oil industry In general terms, we can say that the existing barriers that impede Pemex to enhance the production of our existent hydrocarbon resources and develop new energy resources, such as shale gas, should be seen as a complex list of topics that the Executive and Legislative Branch have to address in order to guarantee the sovereignty of Mexican Nation over its hydrocarbon resources; and to foster competition in certain downstream activities.
The first topic discusses the restrictive regime that surrounds the National
It is well known that the 2008 energy reform was considered incomplete
Oil Industry. As mentioned by prestigious analysts’ the Mexican petroleum regime remains possibly the most restrictive in the world due to the fact that most of the activities that comprise the National Oil Industry (upstream, midstream and downstream) are carried out in an exclusive manner by the Nation through Pemex and its Subsidiary Entities without allowing the ex- istence of competition in the oil and gas sector; with the exceptions of trans- portation, storage and distribution of natural gas and liquefied petroleum gas. This is in contradiction to the Nation’s direct dominion over its natural resources –including its hydrocarbons-, with its role in determining, con- ducting and carrying out the integral and sustainable development of the Nation and with the Nation’s role in those strategic areas set out in Mexican Constitution, specifically oil and its derivatives and the basic petrochemical industry.
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