Home' Trinidad and Tobago Guardian : November 20th 2014 Contents BG14 | REGIONAL
BUSINESS GUARDIAN www.guardian.co.tt NOVEMBER 2014 • WEEK THREE
Recruitment flyers are being
handed out in the main
square of Los Ramones, a
once-sleepy town of tumble-
weed and spit-and-sawdust
bars 63 miles south of Mex-
ico s border with the United States. The call
is for workers to start building the second
stage of a gas pipeline heading south toward
central Mexico, even before the first stage of
the pipeline has been inaugurated.
The Los Ramones pipeline is the spine of
a proposed 6,200-mile natural-gas transport
network that could lead the transformation
of Mexico s energy industry. On December 1,
when gas is to start flowing down from Texas
to Los Ramones along stage one of the pipeline,
Mexico s gas market will be physically plugged
into that of the rest of North America for the
first time. Emilio Lozoya, chief executive officer
of Pemex, the state oil company, points out
that this means that Mexico will start to benefit
from the cheap shale gas that has boosted the
prospects of all manner of businesses north
of the border.
The implications of this step alone could
be profound for Mexican industry. About a
fifth of the country s power is now generated
with dirty, expensive fuel oil which, excluding
subsidies, makes the cost of electricity to
industrial users 75 per cent higher than in the
United States. A greater supply of cheap gas
coming down the pipes, coupled with a recent
liberalization of the electricity market to
encourage the building of new power plants,
could start to drive down power prices for
industrial users within two years, officials say.
That could make Mexico s most buoyant export
businesses, such as automaking and aerospace,
even more competitive.
This is, however, only one part of an energy
revolution that is set to sweep Mexico now
that its constitution has been changed, and
enabling laws have been passed, to end Pemex s
76-year monopoly on oil and gas production.
All aspects of the energy market are being
opened. A country with huge potential reserves
-- including extensive shale beds that mirror
those across the border in the United States,
albeit with more legal obstacles -- is poised
to start exploiting them more efficiently.
On or around November 15 the government
plans to start the process of inviting private
oil companies, domestic and foreign, to bid
for the first new exploration blocks, in shallow
waters off the Gulf coast. By March 2015 the
global oil majors will get their first glimpse of
the tender process for some of the juiciest
prospects of all, the mostly untapped deep-
water sites in Mexico s part of the Gulf. "Round
One" of the tendering process also will include
a number of onshore exploration blocks. The
government hopes that, during the coming
four years, the successful bidders in this round
will invest about US$50 billion in the blocks
Besides being able to bid for oil fields and
gas fields, and to build electricity-generating
plants, private firms will be freer to invest in
pipelines, ports and other infrastructure,
something that cash-strapped Pemex long
has failed to do. If all goes according to plan,
the influx of capital and the fall in energy
costs should boost productivity and profits
across Mexican industry, lifting the country s
hitherto anemic growth rate, which is the
main objective that President Enrique Pena
Nieto had in mind in promoting the energy
Foreign firms are impressed with the speed
at which Pena is pushing through reforms
that were all but unthinkable only a few years
ago, even amid political turmoil.
"Mexico has really captured the imagination
of the world energy sector," said Enrique
Hidalgo of Exxon Mobil, America s largest oil
However, potential bidders still are waiting
for details of all the technical and financial
requirements for which they will have to sign
up.Private firms, domestic and foreign, also
will be looking for indications that the gov-
ernment is serious about ensuring that they
can compete fairly against Pemex and another
state energy behemoth, the Federal Electricity
Pemex officials insist that they are perfectly
happy to see competitors come in, because
they will have enough on their plates reforming
the bloated, inefficient company and reversing
its declining oil output.
The government is conducting a commu-
nications blitz to reassure investors that there
is plenty of room for new entrants to prosper
alongside the two state giants, given the huge
amount of untapped reserves the country
enjoys, the dire need for new infrastructure
and the strong demand for cheaper gas and
The various regulatory bodies that oversee
the energy business have been given new man-
dates to prevent market dominance, notes
Francisco Salazar, the head of one of them,
the Energy Regulatory Commission, and the
national antitrust agency has been given the
power to intervene in energy markets.
However, Mexican business leaders wonder
how easy it will be for the two state giants to
shake off their monopolistic mindset.
"The risk is that you think you have a level
playing field and you find yourself against two
Samsons," said Jaime Williams of the Business
Coordinating Council, a lobbying group.
Officials also are trying to dispel three further
clouds of doubt that lately have been cast over
the energy reforms. The first is the falling
price of oil. Pemex officials argue that this
may even prove an advantage for Mexico, since
its new oil will be relatively cheap to extract.
Many of the new exploration blocks will have
total costs of perhaps between $40 and $45
dollars a barrel, they say, comfortably below
the US$77 a barrel at which Texan crude was
trading this week. Global firms thus may lose
interest in more costly projects in other parts
of the world and turn their attention to Mex-
ico.Even so, if crude prices keep falling, some
of Mexico s costlier deep-water and shale-gas
prospects may begin to look unattractive.
The second area of concern is violence and
lawlessness. These have come back into the
spotlight since September, following the mur-
ders of 43 students in southwestern Mexico.
Jesus Reyes Heroles, a former head of Pemex,
notes that global oil companies are used to
coping with such risks, though now there may
be more attention to potential security threats
in some oil-rich states, such as Tamaulipas
and Veracruz. Of course, many other new oil
fields will be safely out at sea.
A third issue is transparency. Pena has done
himself no favours on this score: It emerged
this week that he is living in a home owned
by a businessman who has bid for big gov-
ernment contracts. The energy-bidding process
will be overseen by a variety of ministries and
regulators, which should help promote open-
ness, though it also may promote bureaucra-
cy.Even if Mexico s energy revolution turns
out to be more of a slow burner than the gov-
ernment hopes, it has the potential to create
large numbers of jobs; with luck, at least some
of them in the country s strife-torn south. As
its new pipelines eventually reach across not
only the northern border but also the southern
one with Guatemala, they will bring cheap
energy to Central America too.
For all Pena s current political problems,
the risk of his energy reforms being undone
looks slim, and the prospects for businesses
across the country, and perhaps the whole
region, are set to brighten.
@2014 The Economist Newspaper Ltd.
Distributed by the New York Times Syn-
Mexico's new revolution
The Petroleum Corporation of Jamaica (PCJ) says it will
ensure that Jamaicans benefit, if oil is found from the recently
announced gas and oil exploration project.
The exercise, which commenced on November 1, is being
facilitated under a production sharing agreement (PSA) signed
by the PCJ, and Tullow Jamaica Ltd.
An exploration licence has been issued to the firm, which
has committed some J$6.7 billion (one Jamaica
dollar=US$0.0089) to undertake activities off the island s
PCJ manager, Oil and Gas, Brian Richardson, said the PCJ
will ensure that the project "brings the benefits that we desire,"
if the survey results in the discovery of oil.
"We worked very hard to get someone like Tullow Oil on
board and it is our earnest wish that as we go forward, it
brings the benefits that we desire. The PCJ and its team will
ensure that we commit all the resources that we do have to
ensure that Jamaica gets the fullest benefit from the programme
being implemented," he said.
Richardson said the project will have several phases.
"In each of those phases, the explorer, Tullow Oil, will be
looking to build on the knowledge of the past and continue
to use their internal expertise, develop on that knowledge and
hopefully point to a place where we could go on to a more
detailed seismic work, using sound waves to investigate under
the surface," he added.
The PCJ executive said that a key component of the project
is the intellectual sharing and transfer of knowledge, noting
that Tullow Oil will be collaborating with the Department of
Geology at the Mona campus of the University of the West
"They have been here for over 80 years. They have the
underground knowledge and I believe that they (Tullow Oil)
will definitely use the resources there," he said, noting that
the team will meet with members of the department to get
them on board and to hold discussions with students pursuing
"We want to get them on board to ensure that they go
through the process and develop that knowledge base," he
PSJ Group general manager, Winston Watson, said the
immediate benefits of the project will be mainly investments
in the country and job creation on a small scale, as the company
begins "to ramp up its activities here.
"We have not found anything yet. We are just going through
the exploration," he added.
Jamaican company commits J$6.7bn to offshore exploration
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