Mexico auctions two-thirds of blocks in shallow water oil tender

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From Reuters / Reporting by Adriana Barrera; Editing by Bill Trott, Leslie Adler and David Gregorio

“Mexico on Monday auctioned two-thirds of the shallow water oil and gas blocks up for grabs in the latest round of its energy market opening, surpassing the cautious estimates officials made last week.”

“Italy’s Eni, Colombia’s Ecopetrol and Capricorn Energy, a unit of Edinburgh-based Cairn Energy, were among the companies at the forefront of the bidding for 15 blocks in the southern Gulf of Mexico.”

“Ten of the 15 blocks were taken up in the auction.”

“”This is a great result,” Juan Carlos Zepeda, head of the oil industry regulator known as the CNH, told a news conference.”

“Eni took one of the blocks by itself and two in consortium with other companies. One comprised Capricorn and Mexican oil firm Citla Energy, the other was with Citla alone.”

“Citla also partnered with Capricorn to win another block, edging out Eni in a tie-breaker after a hotly contested bid for the ninth block in which both made the maximum possible offer.

“Russia’s Lukoil also took a block, as did a tie-up between France’s Total SA and Royal Dutch Shell Plc.”

“The potential output from the blocks auctioned could total 170,000 barrels per day of crude equivalent, and investments could eventually reach $8.2 billion, Energy Minister Pedro Joaquin Coldwell said.”

“The auction was the latest step in Mexico’s bid to attract more private investment to the industry after Congress changed the constitution in late 2013 to end the 75-year production and exploration monopoly of state oil company Pemex.”

“Pemex won two blocks in Monday’s bidding: one in consortium with Germany’s Deutsche Erdoel AG, and another with Ecopetrol. The Colombian company also won a block with PC Carigali, a unit of Malaysian oil firm Petronas.”

“Spain’s Repsol combined with the company Sierra Perote to win another block in the southern Gulf of Mexico. Top government officials said before the auction they were hopeful Mexico would assign at least one-third to 40 percent of the blocks in the shallow water round.”

“The auction was the fifth since the energy reform, including one deep water and two previous shallow water tenders. The previous ones yielded 39 contracts with forecast investment over their lifespan of $48.8 billion, according to the government.”

“Mexico hopes opening the energy sector will help reverse years of declining crude output. Total crude production in Mexico has fallen to 2.01 million barrels per day from a peak of 3.38 million in 2004.”

From Reuters / Reporting by Adriana Barrera; Editing by Bill Trott, Leslie Adler and David Gregorio

Billion-Barrel Mexico Find Could Spur Rush on Next Oil Auctions

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From Bloomberg / By Adam Williams, Amy Stillman, and Giacomo Tognini / 12 de julio de 2017  

3 Octubre_shutterstock_316027709“A billion-barrel crude discovery in Mexico could be just the lure the country needs to boost investment from oil majors as it lacks the wherewithal to reverse years of sagging output.”

“At a time when global oil prices were cratering, and drillers were nervously cutting exploration funds, Mexico’s earliest auctions drew spotty interest. Since then, however, European drillers led by Italy’s Eni SpA have increasingly become involved. The find in Mexico’s shallow waters could drive added interest — and higher bids — in future auctions as the government seeks to boost production that’s fallen by a third in the past decade.”

“On Wednesday, Premier Oil Plc, Sierra Oil & Gas and Talos Energy LLC announced the first Mexican discovery by explorers other than state-owned Pemex in 80 years, a reservoir with an estimated 1.4 billion to 2 billion barrels. With new auctions set for the end of the year, the find promises to rev up interest in Mexico’s energy riches moving forward, said Pablo Medina, an analyst at the consulting firm Wood Mackenzie Ltd.”

“Future bids will likely be more aggressive,” Medina said in a telephone interview. “This obviously increases the attention people will pay. The area contiguous to this block is going to go up in value, no question.”

“About a fifth of Mexico’s public budget relies on oil revenue, with production averaging 2.15 million barrels a day last year, the lowest level in more than three decades. That drop in output, combined with lower oil prices, forced the government to cut spending, causing growth in the $1.1 trillion economy to decelerate to the slowest pace since 2013.”

“Oil has hovered near $45 a barrel in New York, less than half the $100-plus it reached in 2014, as global supplies remain stubbornly high. The West Texas Intermediate benchmark closed at $45.49 on Wednesday.”

Mexico’s Gain

“The Mexican government will receive a 68.99 percent profit share from every barrel produced in the block, and as much as 80 percent when considering taxes and fees over the life of the project, Sierra said in a statement. “It is of great importance for Mexico,” Mexico Oil Commissioner Juan Carlos Zepeda wrote in an emailed statement.”

“President Enrique Pena Nieto embarked on an ambitious reform of the energy sector in 2013, aiming to revive flagging output at a time when oil prices were in the triple digits. The reforms, which didn’t kick in until after oil prices had fallen, involved amending the constitution to allow foreign investors into the country’s oil industry for the first time since it was nationalized in 1938.”

“The first auctions came in 2015, with outside investors invited to bid on fields that were previously only accessible to Pemex. Eni was one of the first oil majors to win a bid in Mexico and has stood out in the race by winning several contracts.”

“Since then, some of the world’s largest oil companies, including Exxon Mobil Corp., Chevron Corp., and BP Plc, signed contracts in the country. European majors Repsol SA, Royal Dutch Shell Plc, and Total SA also won leases earlier this year in shallow-water fields.”

Less Risk

“The find has “de-risked a little bit some of these shallow-water opportunities” in Mexico as it confirms that other explorers have the potential to find assets that Pemex either overlooked or couldn’t develop, said Jeremy Martin, vice president of energy and sustainability at the Institute of the Americas, speaking over the phone from La Jolla, California.”

“There are a host of companies on the U.S. side of the Gulf that may now consider participating in upcoming auctions because this is a way of showing them that the process works, and can lead to a discovery,” Martin said.

“The next auctions, in deep water and for shale blocks, will likely come at the end of this year or the start of 2018.”

“The new find will “certainly create more buzz” around the next auctions, said John Padilla, Managing Director of energy consulting firm IPD Latin America in an emailed response to questions.”

Dos Bocas

“The shallow field holding the find is located 37 miles (60 kilometers) offshore from the Mexican port of Dos Bocas in 546 feet (166 meters) of water and contains light oil, Premier Oil said in a statement. The discovery comes just two years after the three companies jointly won the exploration license.”

“In an interview on Wednesday, Premier CEO Tony Durrant listed the potential of the site at 1 billion to 1.5 billion barrels. Sierra said the primary target reservoir contains 1.4 billion to 2 billion barrels, and could extend into a neighboring block.”

“Mexico “took a really difficult decision for them politically after 40 years of 100 percent Pemex-ownership,” Durrant said. The opening up of the country’s industry “caught them at absolutely the worst time because of the collapse in oil prices. But to be fair to them, they persevered and they have now got very strong industry interest.””

From Bloomberg / By Adam Williams, Amy Stillman, and Giacomo Tognini / 12 de julio de 2017  

Mexico Delays Oil Auction, Allows Investors To Assess Recent Finds

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From OilPrice.com / By Tsvetana Paraskova – Jul 17, 2017, 3:00 PM CDT

“Mexico’s next offshore oil auction will be held in January next year instead of in December 2017 as initially planned, in order to give bidders more time to assess all new data in view of the recent huge finds in the Mexican part of the Gulf of Mexico, the head of Mexico’s oil regulator told Bloomberg in an interview published on Monday.”

“Last week, UK-based Premier Oil, along with its partners Talos Energy and the Mexico City-based Sierra Oil & Gas, said that they struck oil in excess of 1 billion barrelsin the shallow waters in the southern Gulf of Mexico.”

“The very same day, Italy’s Eni—which had drilled a successful exploration well in Mexico’s shallow water, discovering much more oil than was anticipated—said that thanks to the results of a new offshore well, the major is raising its estimate of resources in place at Amoca to 1 billion barrels of oil equivalent, “paving the way for the implementation of an accelerated development plan.””

“Following these results, Eni will submit an accelerated and phased development plan in 2017 targeting an early production phase with a plateau ranging from 30,000 to 50,000 bopd with the start of operations planned for early 2019, the Italian group said.”

“There was already interest to come, explore and work in the Gulf of Mexico before these finds, but now to have discoveries in such a short time, interest of international entrants to have activity in Mexico has renewed,” Juan Carlos Zepeda, head of Mexico’s National Hydrocarbons Commission that oversees the industry, said in an interview with Bloomberg.

“International and national interest is awakening,” the official noted, adding that Mexico would announce the areas up for grabs at the next auction “in a few days”. 

“Oil majors are snatching up offshore blocks in Mexico, with the latest auction exceeding expectations. Mexico is planning to hold four more oil and gas block tenders by November 2018 as part of efforts to ensure the sustainability of its energy industry and make better use of its hydrocarbon reserves.”

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From OilPrice.com / By Tsvetana Paraskova – Jul 17, 2017, 3:00 PM CDT

Four Days to the Mexican Oil Auction

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Energy and Capital / Written by Christian DeHaemer / Posted July 10, 2017 at 6:04PM

“After February 10, 1916, for better or worse, North America would never be the same.”

“You see, deep in the jungles of Veracruz, Mexico, they were searching for oil. Drilling had commenced several days earlier and had reached a depth of 1,752 feet.”

“Then it happened — the boredom was suddenly interrupted. A blast of crude exploded up from the well, destroying the derrick and ejecting drilling tools up to 120 feet away.”

“For nine straight days, the gusher shot higher and higher, finally reaching an estimated 598 feet and raining oil as far as two miles away.”

“On February 19, the day the well was finally capped, it blew an incredible 260,858 barrels in 24 hours.”

“This was the famous Cerro Azul No. 4 well, which was in the Golden Lane Trend of the Tampico-Misantla basin. Since that historic gusher, this basin has produced over 5 billion barrels of oil.”

“Most of it was extracted by the late 1930s. Since then, flows have reduced to a trickle, and the basin has become a low priority for Mexico’s state-run oil company, Pemex.”

“The company figured most of the oil was gone, so it moved on to other projects.”

But It Was Wrong About Tampico-Misantla
“In fact, there’s at least another 5 billion barrels of oil waiting to be tapped there, according to IHS Markit.”

“And all that oil is about to do for Mexico what the Bakken did for the U.S.”

“In fact, the geography is very similar to the super-rich fracking fields of the Permian Basin of West Texas, which sits just over the border.”

Here’s the Deal
“The state-owned oil company Pemex has had full control of the Mexican oil industry since it was nationalized 75 years ago.”

“As you can imagine, it was full of corruption and malinvestment. Pemex didn’t reinvest in new technology or refineries, and starting in 2004, oil production has been in decline. It hasn’t made a profit since 2012.”

“You see, Pemex lacked the skill necessary to pull oil out of its mature fields. It needed frackers and horizontal drillers with experience, like those small companies in the U.S. and Canada.”

“To solve this problem, Enrique Peña Nieto’s government somehow managed to end the state monopoly. He welcomed the world’s oil companies and held the first auction of oil-rich licenses two years ago. At the time, July 15, 2015, the price of oil was just bouncing off its lows of $28 a barrel.”

“No one wanted the blocks, and 12 of 14 went unsold. Those that did sell went on the cheap.”

Micro-Cap Fracker
“I’ve discovered one micro-cap company that won a bid on a prime block of Tampico-Misantla property.”

“I’ve spoken with the CEO and have plans to head to Veracruz when the first drill is struck this fall. The company has experience in fracking and reducing costs of production. The more fields it wins, the better its bottom line and the higher its share price.”

“In Mexico, the cost of production can be as low as $13 a barrel. This is because the fields are mature, inland, and shallow. Infrastructure such as roads, pipelines, railroads, docks, and refineries have already been built, and salaries are well below the U.S.”

“This situation reminds me of the 759% gain from Petro Matad, a Mongolian oil play, my Crisis and Opportunity readers made a few years ago.”

“The next oil auction is coming on July 14 — that’s this Friday. The $0.32 company I’m talking about has plans to add to its first block. If its plans are successful, it will be a catalyst for share price appreciation starting as soon as next week.”

“The market cap is low, and the float is thin. Any positive news will send this stock higher. Read all about it here. In four days, this opportunity will be over.”

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“Christian DeHaemer @TheDailyHammer on Twitter

Since 1995, Christian DeHaemer has specialized in frontier market opportunities. He has traveled extensively and invested in places as varied as Cuba, Mongolia, and Kenya. Chris believes the best way to make money is to get there first with the most. Christian is the founder of Crisis & Opportunity and Managing Director of Wealth Daily. He is also a contributor for Energy & Capital. For more on Christian, see his editor’s page.“

 

Energy and Capital / Written by Christian DeHaemer / Posted July 10, 2017 at 6:04PM

 

Mexico expects four more oil auctions before by end of 2018

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Reuters MARKET NEWS | Thu Jul 6, 2017 | 8:26pm EDT

“Mexico expects to launch four more oil and gas auctions before the current president’s term concludes in November 2018, Energy Minister Pedro Joaquin Coldwell said at a conference on Thursday.”

“The government had previously said three more tenders were planned, but Coldwell said a fourth would be a mix of fields including some deep water areas.”

“The tender could also include shallow water fields as well as gas-rich shale areas, he said.”

“A constitutional energy overhaul in 2013 paved the way for the auctions by ending the decades-long monopoly enjoyed by national oil company Petroleos Mexicanos, better known as Pemex.”

“A champion of the energy opening, President Enrique Pena Nieto was elected in 2012 to a six-year term and is by law prohibited from seeking reelection”

“The front-runner to succeed Pena Nieto in Mexico’s 2018 election is Andres Manuel Lopez Obrador, a vocal opponent of the oil opening who could put a halt to future auctions.”

“Coldwell said bid terms for the next deep water oil auction should be published by the end of this month, with contracts awarded by early January.”

“An onshore oil auction covering 24 blocks will take place next week, following a shallow water tender last month.”

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(Reporting by Adriana Barrera; Editing by Andrew Hay)

Reuters MARKET NEWS | Thu Jul 6, 2017 | 8:26pm EDT

Exclusive: Mexico’s Pemex sees October selection of refinery coking plant partner – sources

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Reuters | By Ana Isabel Martinez| MEXICO CITY | Mon Jul 3, 2017 | 12:56pm EDT 

pemex-1024x679“Mexican state oil company Pemex plans to choose a partner at the end of October to finish the development and operate a $2 billion coking plant at its Tula refinery, government and Pemex sources told Reuters.”

“Pemex is looking for partners to improve the performance of its state-owned refineries, which currently process about 915,000 bpd of crude, well below their combined capacity of 1.6 million bpd.”

“Pemex had previously planned to select a partner before June but the process has fallen behind schedule “because of the complexity and the investment needed,” said a separate industry source with direct knowledge of the project.”

“Since May, Pemex has invited 56 companies to bid but will not launch a tender as planned, a Pemex source said, calling the process “open, competitive and transparent.””

“Two years of sagging oil prices and mounting debt have forced the Mexican oil firm to seek equity partners to help fund key projects.”

“Asked about the partnership plan, a Pemex spokesman said the details provided by sources were correct.”

“Japan’s Mitsui & Co., Korea’s SK Group, Italy’s Eni, China’s PetroChina and Sinopec, British-Dutch Royal Dutch Shell Plc and U.S. oil major Chevron are among the companies interested in the project, sources told Reuters in April.”

“Pemex has hired Bank of America Merrill Lynch to help in the search for a partner, the Pemex source said.”

“Tula, like two other Pemex refineries, lacks coking capacity, which boosts production of higher-value fuels like gasoline from Mexico’s increasingly heavy crude production.”

“Interested companies are being asked to present their proposals by the third week of August and Pemex will draw up a shortlist by September, two Pemex sources said.”

“The final selection “will take place in the last week of October,” the first Pemex source said.”

“Tula is Pemex’s second largest refinery, with a capacity to process 315,000 barrels per day (bpd) but in May processed 228,126 bpd, company data showed.”

“The new plant will be located adjacent to Pemex’s existing Tula refinery, in the central state of Hidalgo.”

“In 2015, Pemex said it signed a contract with ICA Fluor for engineering, procurement and construction for an initial phase of projects to boost gasoline and diesel output and reduce fuel oil output by building a coking plant. Reuters was not able to confirm the status of the project with ICA Fluor, a joint venture between construction firm ICA and Fluor Corp.”

“In 2016, the state-owned oil company presented a business plan that included the “Tolling coker Tula Alliance” project, as well as partnerships to improve operations and/or reconfigure the Tula, Salamanca and Salina Cruz refineries.”

Reuters | By Ana Isabel Martinez| MEXICO CITY | Mon Jul 3, 2017 | 12:56pm EDT 

Union Pacific CEO Sees Growth With Mexico

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Bloomberg / By Thomas Black 28 de junio de 2017 12:57 GMT-5

“Union Pacific Corp. sees Mexico trade as a bright spot for its rail freight growth despite tough trade talk from President Donald Trump, said Chief Executive Officer Lance Fritz.Shipments between Mexico and the U.S. have been expanding as much as 6 percent annually over the last six years and now make up about 12 percent of the railroad’s revenue, Fritz said Wednesday in an interview. Union Pacific, the largest publicly traded railroad in North America, has captured 70 percent of the U.S.-Mexico train traffic through its six border crossings, he said.”

““Even while we struggled in volume in ’15 and ’16, we were growing with Mexico,” Fritz, 54, said at Bloomberg’s headquarters in New York. “I think there’s great opportunity there still.””

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“U.S.-Mexico trade in goods soared to $524 billion last year from $81 billion in 1993, the year before the North American Free Trade Agreement took effect. Trump has called out U.S. companies for building factories south of the border and often points to the U.S. trade deficit with Mexico, which was $64 billion last year, leading him to assail the trade pact. The administration has signaled it will hold talks with Mexico to renegotiate Nafta.”

“Trump’s anti-trade comments don’t worry Union Pacific, according to Fritz, who said he has spoken with Commerce Secretary Wilbur Ross and others in the administration. Those officials are focused on fairness and bilateral deals and aren’t expected to erect significant trade barriers, Fritz said.”

““They’re quite pragmatic and reasonable,” he said. “They understand how inextricably linked our supply chains are in Nafta and globally. They understand the value that brings to both consumers and industry and the job creation it represents for the U.S., notwithstanding there is some dislocation.””

“Chemical Output”

“A burgeoning U.S. chemical-production boom along the Gulf of Mexico also marks a growth area for Union Pacific as new factories are built to use raw materials from shale drilling. About $30 billion of capital investment is being poured into one Texas county alone, Brazoria, near Houston, he said.”

“Union Pacific is tapping that market by building a packaging plant that will enable the railroad to transport plastic pellets from Dallas to West Coast ports for shipment to Asia. That will help fill 85,000 containers a year that now are shipped back empty to the West Coast.”

“Volume at the Omaha, Nebraska-based railroad is growing this year after dropping in 2015 and 2016, mainly as demand for coal slumped. Shipments of the fossil fuel have stabilized after it went from generating 50 percent of U.S. electricity to about 30 percent today.”

“Still, the railroad has ceded some market share to BNSF Railway Co., which is owned by Warren Buffett’s Berkshire Hathaway Inc. and is Union Pacific’s biggest rival in the western U.S. An excess of truck capacity meanwhile has put pressure on cargo volume and the ability to raise prices, Fritz said. Coal and intermodal — which is freight in containers that can be hauled by ship, truck or train — are especially susceptible to price competition.”

““There just may be some piece of business that our competition is going to secure at a lower price than we’re willing to go,” Fritz said.””

Bloomberg / By Thomas Black 28 de junio de 2017 12:57 GMT-5

IFR Joint Venture Tonalli Energia Qualifies for Upcoming Mexican Onshore Bid Round 2.3

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Stockhouse | V.IFR | CALGARY, Alberta, June 26, 2017 (GLOBE NEWSWIRE)

“International Frontier Resources Corporation (“IFR” or the “Company”) (TSX-V:IFR) (OTCQB:IFRTF) today announced that its jointly owned Mexican company Tonalli Energia (“Tonalli”) has been named by Mexico’s energy regulator, the National Hydrocarbons Commission (CNH), as one of 12 companies and seven consortiums to qualify to bid on up to 14 blocks in bid round 2.3 scheduled for July 12, 2017. Other qualifying bidders are from Mexico, Canada, the United States, China, Colombia and Uruguay.”

“As previously announced on January 19, 2017, Tonalli has been analyzing and assessing block data, and completed documentation in anticipation of entering the bidding process this July. Concessions are to be awarded under a license contract model for exploration and production that will last 30 years and can be extended for a maximum of two additional terms of five years each.”

“Round 2.3 includes 14 onshore blocks averaging 185 square kilometres (72 sections) available nationwide: six in the Southeastern Basin, four in the Burgos Basin, three in the Veracruz Basin and one block in the Tampico-Misantla Basin. Covering a total of 2,595 square kilometres, these development and exploration blocks contain 25 oil and gas fields with existing 3D or 2D seismic coverage. The Mexican government estimates that the blocks contain total prospective exploration resources of approximately 251 million barrels of crude equivalent and remaining original extraction volumes of approximately 328 million barrels of crude oil equivalent.”

“IFR was one of the first foreign companies to participate in the historic reform of Mexico’s oil and gas sector. Last year, Tonalli assumed operatorship of the Tecolutla block from state-owned PEMEX.  Tecolutla was acquired through a 50-50 joint venture with Mexican petrochemical leader Grupo IDESA in last year’s onshore block auction.”

“ABOUT INTERNATIONAL FRONTIER RESOURCES”

“International Frontier Resources Corporation (IFR) is a Canadian publicly traded company with a demonstrated track record of advancing oil and gas projects. Through its Mexican subsidiary, Petro Frontera S.A.P.I de CV (Frontera) and strategic joint ventures, it is advancing the development of petroleum and natural gas assets in Mexico.”

“The Company’s shares are listed on the TSX Venture, trading under the symbol IFR, and on the OTCQB under the symbol IFRTF. For additional information please visit www.internationalfrontier.com.”                                                                                    

““Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility or accuracy of this release”. The Company seeks Safe Harbor.”

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FOR FURTHER INFORMATION Steve Hanson – President and CEO (403) 618-7346 shanson@internationalfrontier.com or Tony Kinnon – Chairman (403) 607-6591 tkinnon@internationalfrontier.com

Stockhouse | V.IFR | CALGARY, Alberta, June 26, 2017 (GLOBE NEWSWIRE)

 

OPEC Deepens Oil Cuts as U.S. Shale Comes Back

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Bloomberg / By Brian Wingfield and Samuel Dodge / 

“The most globalized effort to cut oil production in history is proving increasingly successful. Now Iraq and Kazakhstan just need to do their bit. OPEC curbed output as promised in May, even though Iraq, the group’s second largest producer, hasn’t complied with the agreement this year. Non-OPEC nations trimming supplies are making steady gains, without help from Kazakhstan. There’s still time to improve: the cuts are set to remain in place through March.”

“OPEC Cuts Output More Than Promised”

“Thousands of barrels a day”

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“The 21 nations participating in supply cuts are collectively trying to reduce output by almost 1.8 million barrels a day, in most cases using October levels as the starting point. Five OPEC members and three from outside the group met their targets last month, versus nine in April, revised data show. The biggest producers wield the most influence. Russia’s deeper cuts buoyed non-OPEC compliance, even if it didn’t fully meet its own pledged supply curbs.”

“Which Countries Reached Their Output Target in May?”

“Eight of 21 countries involved reached their target”
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“More than half of the burden for reaching the total supply-cut goal falls upon Saudi Arabia, Russia and Iraq. Only the Saudis have consistently met their target, lifting OPEC’s compliance in the process. Russia, responsible for much of the non-OPEC pledged cuts, has said it would curb output gradually. Iraq’s compliance rate in May fell to 65 percent, versus 87 percent in April, OPEC secondary source data show.”

“May Crude Oil Production”

“Thousands of barrels a day”

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“Kazakhstan, which is boosting output from its Kashagan oil field, again produced more crude than it pledged to do under the supply agreement. Small producers Gabon and South Sudan also pumped more than they said they would, according to OPEC and IEA data. Other nations that didn’t cut as much as promised include Algeria and Malaysia. OPEC members Libya and Nigeria are exempt from supply curbs, and Iran is allowed to boost output.”

“Price and Production”

“Prices Have Fallen to Near November Levels”
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“By the end of May, oil prices had fallen to within cents of where they were on Nov. 30, when OPEC announced the supply cuts. That’s largely because others, notably U.S. shale producers, have ramped up output. Libya and Nigeria have also boosted production, and the IEA sees new supplies from OPEC’s rivals outpacing global demand growth next year. For OPEC and its allies, draining the world’s oil glut suddenly looks much harder.”

Bloomberg / By Brian Wingfield and Samuel Dodge / 

American energy firms are enjoying a bonanza south of the border

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| KU-MALOOB-ZAAP| The Economist

“A CHEMICAL engineer at Pemex, Mexico’s state-owned oil company, opens a tap atop a maritime platform in this offshore oilfield in the southern part of the Gulf of Mexico. She decants a jar of heavy Mexican crude that comes, hot to the touch, from 3,500 metres below the seabed. It looks like a succulent chocolate sauce, but smells like the back end of a cow. “Taste it,” she laughs.”

“The crude that she is testing is pumped a short distance across the sea to a vast floating storage tank, known as an FPSO, where it is blended with lighter crude for export. The FPSO stores about 2m barrels—roughly the equivalent of a day’s worth of Mexican oil production. A quarter of that is fed into a supertanker tied alongside, contracted by Chevron, America’s second-largest oil firm. It then sails north across the maritime border to Texas or Louisiana where the crude runs through refineries. The refined petrol or diesel often then returns to Mexico.”

“These transactions are part of a historic transformation of North American energy that President Donald Trump appears to have overlooked as he fumes over his country’s trade deficit with Mexico and pours scorn on the North American Free Trade Agreement (NAFTA). In 2015 the energy trade balance flipped (see chart). Between 2011 and 2016, it swung from an American deficit of $20bn to an American surplus of $11.5bn. America earned almost as much from exporting hydrocarbons to Mexico as from cars and trucks.”

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“This about-turn has been caused by several factors, namely America’s shale boom, Mexico’s slumping oil output (down by more than 1m barrels a day in a decade) and energy liberalisation in 2014 that ended Pemex’s 75-year-old hegemony over the domestic oil industry. This shifting landscape has already had an effect on Pemex: a recent bump in oil prices, combined with cost-cutting, has led to its first consecutive quarterly profit in six years. The ripple effect through North America’s energy business has also been quick, and should expand—provided it is not derailed by a hamfisted effort to renegotiate NAFTA.”

“The cross-border flow of hydrocarbons is the most tangible change. Petrol from American refineries amounts to about half of Mexico’s domestic consumption. Last month Tesoro, a Texan refiner, became the first private firm to win an auction to move imported petroleum products through Pemex’s own tanks and pipelines.”

“Mexico has also become the destination of choice for surplus American natural gas, produced in the shale revolution. Sales south of the border have almost doubled since 2014, as Mexico switches its power generation from coal and oil to cheaper, cleaner fuels. The capacity of natural-gas pipelines crossing the border is expected almost to double over the next three years. Since Cheniere Energy became the first firm to export American liquefied natural gas last year, much has flowed to Mexico.”

“Investment is also flowing. American oil companies won five out of the eight blocks auctioned in Mexico’s first sale of deepwater oil licences last year. That forms part of what Pedro Joaquín Coldwell, Mexico’s energy secretary, says are $49bn-worth of international investment commitments in exploration and drilling since 2015. José Antonio González Anaya, Pemex’s boss, says he hopes to encourage American refiners such as Tesoro and Valero to co-invest in some of Mexico’s six refineries. But all were built before 1980, are decrepit, and lose about $9bn a year.”

“The changes are becoming visible at the petrol pump. ExxonMobil, America’s largest oil company, announced in May that it would open its first petrol station in Mexico this year and invest $300m in fuel distribution over the next decade. Currently, only one petrol station in Mexico is owned by a supermajor, BP (its enthusiastic pump attendants work for salaries, not tips, unlike those at Pemex-branded ones).”

“At a congressional hearing in Washington this month, experts noted that the United States, Mexico and Canada are on track to achieve North American energy independence by 2020—meaning the region will produce more liquid fuels than it consumes. Cheap, abundant energy will boost the region’s industrial competitiveness; it will also reduce its dependence on less stable producers such as Venezuela and Persian Gulf States.”

“But in both America and Mexico, uncertainties loom. The process under way to renegotiate NAFTA could jeopardise energy co-operation if Mr Trump pulls America out of the treaty, as he has threatened to do. Since Mexico’s energy liberalisation, NAFTA’s provisions have helped provide certainty to foreign investors. Those safeguards could be valuable if Andrés Manuel López Obrador, a staunch opponent of energy reform, wins Mexico’s presidential election next year. He could take issue with the growing dependence on American fuel. A vibrant network of North American energy markets is taking shape, but it remains fragile—especially with populists blundering about in positions of power.”

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| KU-MALOOB-ZAAP| The Economist