By Javier Arreola and Patricio Gutiérrez Velarde Several American states…
Recent international development in the energy industry as well as Mexico’s energy reform has changed the script regarding the means, but not necessarily the substance. Up to date, there are several positive outcomes that are less talked about due to the frenzied pace in which the process is being implemented and decisions are made; which seven of those outcomes are described below.
Specifically, we have overcome the 2014 bitter period when oil prices abruptly plummeted, but also that of the middle of 2015, when only two of the fourteen oil fields were awarded during Round 1. For the second bidding, three out of five oil fields were awarded. This correlation is good not only for the number of allocations, but also for the government’s earnings.
The previously described equilibrium generates a second outcome which is the market’s authority over the different players: government, private initiative, and consumers. All of them are learning a new way to relate to each other in that the market gives and also takes. Each one must carry out their duties and use their strengths to take advantage of the opportunities laid out on the table.
The bidding’s transparency is another positive outcome from the reform because the international scrutiny multiplied, and the energy regulators came forward in a timely manner. For its entry barriers and the relevance for national security, the energy industry has always been seen with suspicion, but the execution of this reform has set an example for other players that are also implementing the various reforms. Fortunately, this process has emerged untouched by the controversies in which other government areas have been involved.
The regulatory bodies have also set an example in the training of human resources, rapidly recruiting new talent who is learning the knowledge that Mexico lacked. While there are still many human resources needs, Mexico possesses the great opportunity of being the neighbor of Texas the energy capital of the world; consequently, there will not only be investments that will be transferred, but also technology and know-how.
The fifth positive outcome is the experience gained by the preparation of bids and the implementation of better practices at an international level. Now comes the icing on the cake: the fourth bidding in round 1, which consists of deep-waters. This part of this process is being cautiously prepared due to its crucial nature: deep-water extraction requires very long-term estimations, which overlaps with the immediate depressed oil price juncture. During this phase, the prestige of the reform is on the line, and its result will be decisive to anticipate the continuance of the changes either with success or little inertia, beyond 2018.
The sixth positive outcome is the profound transformation of the electricity sector, which is less talked about, but its transition from a monopolistic market to a pro-competitive one opens huge opportunities. The reform mandates the financial, legal and operational separation from the Federal Electricity Commission that will fragment the company into smaller entities. Not only will it have a more modern structure, but it also will have to develop its competitiveness to face private individuales, who now will be able to invest in this area.
The seventh positive outcome is the movement surrounding the local content that needs to help develop advanced manufacturing companies and energy industry suppliers, if all its potential is set free, we would be talking of a new economic growth model that we hope translates into a boost of the country’s productivity, which has been stagnant for several years.
Having reviews these less talked about outcomes, we can say that once more the challenge passes through an old adage. The permanent conflict is: to be one of those who embraces the change or who opposes it. The result from this question is not two-dimensional but multi-dimensional, thus there will not necessarily be absolute winners and losers. Instead, those who better adapt will be strengthened from this period of profound changes in the sector.
Published in January, 2016 in AEM Magazine.