'Trump's strengthening of the US energy sector will benefit Mexico'

Thursday, January 26, 2017

While praising Mexico's energy reform and the progress made so far, energy consultant and former Pemex director and Mexican energy minister Jesús Reyes-Heroles González-Garza is critical of the state oil company's role in the country's landmark energy reform, but optimistic of the positive effects US President Donald Trump will have on Mexico's energy sector.

BNamericas: Do you see the Donald Trump administration as a risk to bilateral relations with Mexico's energy sector?

Reyes-Heroles: Trump will usher in a new era in bilateral relations with Mexico, trying to impose his concept of the global economy, of remittances and immigration. He has a team that does not have experience in the portfolios they have been assigned. And this generates a point of inflection in the complicated, bilateral relationship. In the case of the energy sector it's different because Trump has expressed his commitment to reactivating US industry and production, and that includes hydrocarbon production. He'll approve construction of the Keystone XL pipeline, for example, and the construction of more natural gas and LNG infrastructure. This is good news for the energy sector and Mexico will no doubt benefit from that. He's looking to rapidly grow the US economy, and that could translate into growth for the Mexican economy as it drives up demand, and at the same time we're also seeing a rise in oil prices. So Trump strengthening the US energy sector would in turn strengthen Mexico's energy sector.

BNamericas: Two years on, how do you see Mexico's energy reform?

Reyes-Heroles: The reform was based on two pillars to make it sustainable - one of which is broken, or rather it isn't there, and therefore the reform is not holding up. Pemex has not carried out a series of farm-outs or a migration of contracts. Pemex was granted a large number of fields in Round Zero, but has not done anything with them, and therefore we're looking at two years that have been wasted.

It's evident that the big mistake of the reform has been leaving Pemex and the CFE within the federal budget, subject to a huge amount of rules and constraints. They have not been granted the autonomy they were supposed to have as productive state enterprises. And now we're paying the consequences, as the finance ministry remains the authority that approves Pemex's capex, meaning the oil company is restricted in its expenditure, and that is absurd when the reform was designed to grant it autonomy. And the sovereign oil fund, modeled after the Norwegian fund, is not performing the same function; the funds are not being channeled into projects and assets.

BNamericas: But the fact that there are global oil majors participating in the auctions is a sign of investor confidence in Mexico.

Reyes-Heroles: Yes, global firms' interest in Mexico was very clear in the deepwater auction of Round One, and it's very interesting that we are also seeing those big firms, BPExxonMobil, etc., coming to the oil and gas conference to be held at month's end in Mexico City because they want to participate in Mexico's energy sector. We are seeing a great deal of interest among such firms, and which were not present here before.

BNamericas: Your energy consultancy is organizing the Energy Mexico 2017 expo and congress at month's end.

Reyes-Heroles: It's the second time we've organized the event and we have an impressive list of speakers, both from the private sector and government. The idea is to bring to Mexico speakers from all over the world so that Mexican attendees can get to hear their opinions all in one place. We have the secretary general of OPEC, Mexico's energy, finance and environment ministers, the CEO of Pemex, and representatives from global firms. 

About Jesús Reyes-Heroles González-Garza

Jesús Reyes-Heroles González Garza is president of energy consultancy Energea, and co-founder and executive president of Grupo de Economistas y Asociados (GEA), a consultancy firm offering economic and political analysis. He served as energy minister from 1997-2000, when he was appointed Mexican ambassador to the US, and headed Pemex in 2006-2009.

About the company

Mexico City-based Energea offers technical, economic, financial, legal and regulatory support for energy sector projects in the country, as well as advising associations between Mexican and foreign companies in the sector and offering analysis of mergers, acquisitions and project funding.