Jeremy Martin

Rallying Round Zero

For the first time in more than 75 years, the most important date on Mexico’s oil calendar in March was not the national holiday celebrating President Cardenas’ expropriation of foreign oil companies on March 18, but rather the 21st.


Friday, March 21 was the deadline for the national oil company, Pemex, to submit the the energy secretary its formal request for field assignments - its so-called wish list - and the beginning of the Round Zero process, the key first step in the energy reform process signed into law late last year.

 

Round Zero, there’s just something about the name. But as unique as it sounds, it was not invented for Mexico’s energy reform. Indeed, Brazil and Colombia have been there, done that as they revamped their petroleum sectors in 1997 and 2003, respectively.

 

The international context is important. Not only have Colombia and Brazil strode a similar path to opening their oil sectors in terms of verbiage, but more importantly for Mexico followers to consider is that both countries in the Round Zero process was managed similarly, albeit in a much more extended period of time.

 

Brazil took the better part of two years to define Petrobras’ Round Zero assignments; in Colombia, the process took over a year to define Ecopetrol’s fields.

 

Round Zero in Mexico has quickly become  the first flash point on the path to transforming the nation’s energy sector in line with constitutional amendments passed last November.

 

Arguments and opinions are swirling over the issue of transparency during Round Zero and as part of the energy reform process.

 

As Pemex feverishly worked to prepare its resource allocation request, questions emerged about the role of the board of directors in the process and the issue of transparency began to flare.

 

Days before the formal submission, a great deal of indignation centered on the fact that the entire board would not formally vote on the complete package. The board did, however, concede the ability for the CEO’s office to make the final decisions. And the list apparently was shared with the entire board the evening before the submission to the energy ministry.

 

It also is worth noting that the composition of today’s board of directors at Pemex will be completely revamped in the coming months as part of the requirements roar the national oil company to become a productive state company.

 

The transparency issue subsequently pivoted its spotlight to Pemex’s submission on March 21. The outrage was again stoked with commentators crying foul over Pemex’s decision to not make their entire request public.

 

Stories and commentaries circulated bemoaning the lack of information available as to Pemex’s request despite the existence of a 31-page “public version” on the energy ministry’s website.

 

Moreover, a careful reading of the language contained in the energy reform’s Sixth Transitory article turns up no requirement on the part of Pemex or the energy ministry to make their entire submission public.

 

These are strategic assets of the national oil company and the nation, perhaps the most important assets the country possesses. That their assignment, management and how they will ultimately be divvied up are being handled with utmost caution and out of the public as much as possible does not deserves such a level of consternation.

 

Critics were somewhat assuaged as the energy ministry subsequently released statements outlining the general nature of fields and percentages of reserves contained in Pemex’s formal 68-page request followed by  press conference offered by the undersecretary for hydrocarbons.

 

The press conference with the undersecretary provided additional insight as to the Pemex request, the Round Zero process and future bid rounds,of which there will be one held every year beginning in 2015 until the end of the current sexenio.

 

Mexico justly deserves the keen attention and bright spotlight its energy reforms are garnering from Texas to London to Madrid to Beijing. But, as Prime Minister Winston Churchill implored his countrymen after defeating Rommel in Africa, we would all do well to understand that, although important, the current moment is merely the end of the beginning.

 

As the reform process lumbers on, there surely will be critics at every pass - and occasionally with justified complaints.

 

But Mexico’s energy policymakers have proved themselves quite capable to date and deserve ample time and space this year to put the pieces in place for the transformation reform that was approved last December.

A host of issues are central to the presidential election

As the Mexican presidential campaign officially kicks off, there are a host of issues that form an important backdrop for the coming national debate.

 

Parties, candidates hint at energy policy in a new administration

In less than 12 months, Mexico will elect a new president. Surely, the security concerns gripping the country will dominate the campaigns. But, given energy’s role for the country’s economic well being, what candidates say on that topic will be important.

 

Timing enhances appeal of new Pemex projects

With oil prices hitting a two-and-a-half-year high amidst continued turmoil in oil producing and oil transit points in North Africa and the Middle East, the increased focus on global oil supply provides an interesting backdrop for Pemex's new effort to entice private firms to invest in Mexico's energy sector.

 

Pemex's dia de accion de gracias

On Thanksgiving eve, the Board of Petróleos Mexicanos, or Pemex, approved a key piece of Mexico’s 2008 energy reform – incentive based contracts.

With the long-awaited approval of the contracts, Latin America’s largest – but slipping – oil producer begins to implement a key element of the Calderon administration’s envisioned energy overhaul.

 

The presidents and cross-border energy

Virtually unreported in May during Mexican President Felipe Calderon’s state visit to Washington, D.C., was the pledge by the U.S and Mexican presidents to cooperate further on cross-border energy issues, especially renewables.

 

Indeed, they made a commitment to create a Cross-Border Electricity Task Force.

 

Some critics decried the announcement as presidential meeting fodder. Worse, others pointed to years of similar efforts that produced few results.

 

Those criticisms seem short-sighted for a variety of reasons.

 

First, there is strong evidence otherwise along the California-Baja California border, where it is increasingly apparent that renewable energy presents a huge opportunity to move cross-border discussions ahead.

 

Baja California’s wind energy potential is tremendous -- the second largest in Mexico after Oaxaca – and a slate of projects are underway or on drawing boards. Baja California also counts important solar and geothermal potential.

 

When coupled with the increasingly stringent renewable portfolio standard (RPS) in California – which might require 33 percent of the state's energy needs from renewables by 2020 – the combination provides potent opportunities.

 

California is a huge market that is in need of increased renewable-based power generation. Baja California needs an additional market if it is to realize its huge natural resource potential.

 

To be fair, there are serious issues to be confronted -- not the least of which is the desperate lack of electric infrastructure along the border. Moving renewable power to market either in Mexico or California is far from assured.

 

Moreover, critics are not wrong in contending several previous bilateral efforts to collaborate on energy issues have produced little. But the backdrop in both countries has changed greatly, and whenever an issue is raised to the level of a presidential deliverable, it must be considered a positive step forward.

 

Perhaps most relevant for the latest effort at cross border energy collaboration is, for many, also its most appealing element: It has almost nothing to do with immigration or drugs. It is a real economic development opportunity with potentially positive impacts for both sides of the border.

 

There is a lot to be said for having energy collaboration serve as a change of pace from the current slate of negative news emanating from the U.S.-Mexico border.

Pemex and the drug war: A perilous intersection

What has also percolated just below the shootouts, deaths and violence that have been increasingly seared into our collective binational minds as Mexico’s drug war persists is an alarming intersection between the drug violence and Mexico’s energy sector.

 

Chicontepec debate could redefine energy sector

Energy expert, Institute of the Americas

There are times when something is happening around us that we might not deem as monumental as history later judges.

With life’s daily sturm und drang, especially during these trying financial times, the debate unfolding around Pemex’s development of the Chicontepec oil fields might not appear at first glance to be such an occurrence. 

Various developments suggest otherwise. Indeed, Mexico’s debate over Chicontepec could turn out to be a historical marker for the nation’s energy sector.

Underscored by the unexpected change at the top of Pemex in early September, there has been an increasing restlessness with the continued decline in oil production and missed targets at the national oil company.

What had long been an implicit message from President Calderon and Energy Minister Georgina Kessel quickly became explicit: What is happening at Chicontepec and why does it cost so much to be falling so short?

To understand their angst, let’s review the numbers:  Pemex has spent approximately $11.1 billion dollars and has earmarked over $2 billion in 2009 alone for Chicontepec.

Pemex set a 70,000 barrel per day target from Chicontepec in 2009 but had only hit 30,000 barrels per day by the end of September.

As the demand for Chicontepec accountability became much more overt – including public comments by Secretary Kessel – the newly created Comision Nacional de Hidrocarburos (CNH) also began to weigh in. And it did so in a very public and direct fashion.

CNH chief Juan Carlos Zepeda minced no words by declaring, "The project should be stopped and reinstated (until) there is a real development plan."

These comments were followed by questions from other CNH members as to Pemex’s investment and technical plans for Chicontepec.

Critics contend that this was merely an effort by the CNH to flex its muscles as the new-kid-on-the oil block. Perhaps, but flex away they have -- and with good reason as the nation’s newly established oil watchdog.

Proving that CNH and others are not lone voices, the changes on Pemex’s Board of Directors have also figured in the evolving Chicontepec debate. Fluvio Ruiz, who joined the expanded board earlier this year as an independent member stated in an interview that Pemex was far too “optimistic” about the projects.

The awareness of the issues surrounding Chicontepec is very important. This debate would not be happening right now if there had not been energy reform legislation passed last year in Mexico. 

And, let’s be honest: This is a debate worth having, if for no other reason that it will force the various levels of bureaucracy in Mexico to address a public policy disaster. 

For years, the clarion call surrounding Pemex was that it needed the ability to spend more money. But after spending huge sums on Chicontepec, it reminds us of a basic economics lesson: More money does not always mean a positive return on investment.

And as a CEO of an oil field service company said during a recent conference call: “When there’s that amount of noise…Pemex will probably have to look at their strategy.” 

This “noise” is nothing if not a din that underscores the healthiness of a pluralistic debate. Moreover, as the world prepares for climate change discussions in Copenhagen in December the International Energy Agency has used its annual report as a plea for efforts to address emissions and fossil fuel dependency.

But more relevant might be the fact that Plan B for Copenhagen has suddenly become Mexico City – the site of the next international climate change summit.

The debate over Chicontepec and Mexico’s steady conversion to oil importer is clearly unfolding against the larger backdrop of a global energy transition and Mexico’s desire under President Calderon to be a world leader on the issue of climate change.

Mexico should seize this opportunity to use Chicontepec as a historic marker in its domestic energy debate. In doing so, it will have much to tout at the next stop of the climate change world tour and might very well redefine its energy future.

Change at Pemex: Shuffling deck chairs or deepening reform

By Jeremy Martin

President Calderon began the new legislative season and second half of his Sexenio with an impassioned Informe (Mexico’s State of the Union address). Most interesting, two weeks on, were his surprising comments aimed at the oil sector and Pemex.

Among what were cast as the ten most urgent reforms for Mexico in the Informe, President Calderon underscored the need to transform state enterprises. On the oil front, he called for a new, deep reform because “today a deep reform is not only the best option, but the only option.”

 As we know now, the rhetoric was not empty and it ultimately proved a direct hit on the bull’s eye many perceived to have been placed on Pemex chief Jesus Reyes Heroles’ chest.

Land issue skirts the heart of the Pemex refinery issue

By Jeremy Martin
Institute of the Americas

Location, location, location: The age-old first law of real estate has now emerged as a question mark over Pemex’s Bicentennial 300,000 barrel-per-day refinery.

Announced in April and to be built in Tula, in the state of Hidalgo, at a price tag of about $10 billion the topic has resurfaced as perhaps an antidote to the summer lull.

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