Mexico to see $10B per year in oil revenues from industry reforms

bizjournals.com
Mark Yost - Reporter- Houston Business Journal

Mexico expects to see about $10 billion more a year in revenues from the privatization of its oil industry.
"We expect these reforms to result in an increase of 1 percent to GDP by 2018 and an added 2.5 percent of GDP by 2025," said Maria de Lourdes Melgar Palacios, undersecretary of hydrocarbons in the Mexican Ministry of Energy.

Speaking at a seminar Friday morning at the Four Seasons Hotel Houston hosted by the University of Texas at Austin and the Atlantic Council, Palacios also said that while the focus of the privatization is on the oil and gas industry, increasing Mexico's reliance on renewable energy will also be a major focus of the landmark legislation currently being crafted in Mexico City.

"Renewable energy is a priority," she said.

She said that Mexico has a climate change goal to reduce emissions by 20 percent by 2020 and by 30 percent by 2050. Mexico has also set a goal to reduce its reliance on fossil fuels to 65 percent by 2024, down from about 85 percent today. She also said that last year Mexico set up a carbon tax that applies to all fossil fuels and is creating a regime for trading carbon credits.

Palacios said that in terms of renewables, Mexico has "incredible potential in wind, geothermal and solar, as well as small hydroelectric power plants."

She noted that Mexico used to be the world's biggest producer of geothermal power but is now fourth.
"We're making a real push in geothermal, which is unique from other renewables in that you have to do E&P (exploration and production), which is similar to oil and gas production."

She said that Mexico is currently partnering with companies that have developed geothermal fields in other parts of the world, but it needs to build more plants and partnerships to get geothermal power from the field to homes and businesses.

In terms of financing, Palacios said that Pemex, the state-owned oil company, funds about 30% of the federal budget today, or about 4.7 percent of GDP. Under the reforms, Pemex will be privatized but will continue to provide that level of funding to the government through taxes and royalties.

"The ministry of finance is trying to have a neutral budget effect" in terms of Pemex and how much it contributes to the Mexican budget, Palacios said.

Mexico's estimates for growing GDP over the next decade and the $10 billion a year it expects to earn from privatization come from what it expects to collect in taxes and royalties from private companies from the U.S., many of them based here in Houston, and elsewhere that will come into a deregulated Mexican oil and gas market.

She said that foreign companies are starting to submit bids and proposals to move into Mexico, but she doesn't expect the first contracts to be awarded before 2015.

A recent economic impact study from Morgan Stanley's Houston office estimated that overall direct and indirect investment from the deregulation of the Mexican oil and gas industry could be $1 trillion when you add up oilfield investment, infrastructure improvements, and jobs and peripheral industries such as housing, restaurants, hotels and the like along the Texas-Mexico border in the Eagle Ford shale play.