When our neighbors to the south announced major oil industry reforms in August of 2014, many predicted Mexico’s oil production would ramp up on the backs of US investment.
But declines in crude oil prices have dimmed those hopes and – as usual – have made analysts look like fools. Many expected the industry reforms would lure an estimated $62.5 billion of energy investments to Mexico through 2018. In an oil-rights auction in June, the first in the nation’s history, only two of 14 drilling blocks drew sufficient bids to win a contract.
The energy reforms on the production side may have stalled, but a less-publicized push to increase investments in energy pipelines is paying off.
Since last year, when new laws made it easier for foreign companies to export gas to Mexico, there’s been more than $10 billion worth of planned or completed pipeline investments, including some from Texas companies. In January, Energy Transfer Partners of Dallas, which operates more than 62,000 miles of gas pipelines, won two construction contracts valued at a combined $1.4 billion as part of a consortium with Coral Gables, Florida-based MasTec Inc. and Mexican billionaire Carlos Slim’s Carso Energy SA. The projects will connect Texas with northern Mexico.
Jesús Rodríguez Dávalos, founding partner of Rodríguez Dávalos Abogados, a leading Mexican law firm specializing in energy, visited Fort Worth recently and said he can’t move fast enough with pipeline deals.
“We have our hands full, it’s remarkable,” he said.
Rodríguez Dávalos was in Fort Worth to open up an exhibit his firm sponsored at the Fort Worth Library on the early years of exploration, production, refining and distribution of crude oil in Mexico. But he was also in North Texas to talk about potential pipeline deals.
“Everybody wants to talk about the market for pipelines in Mexico,” he said. “We believe that the energy reform is of the utmost importance for the future of Mexico, and that it will undoubtedly generate notable opportunities for energy companies from Texas and other parts of the US.”
All this pipeline construction and investment is helping meet growing demand from Mexican manufacturers, power plants and areas in Mexico where power is expensive. New, cleaner power plants are starting to appear around the country, helping expand the economies of smaller cities and towns.
Comision Federal de Electricidad, a government-owned utility tasked with overseeing new pipeline construction, has requested bids on 12 gas projects totaling $8.7 billion, to be awarded through next year. The government’s goal is to increase the pipeline network by 75 percent by 2018 and triple total gas supplies to 7 billion cubic feet a day by 2028.
And there’s plenty of gas north of the border. While Mexican gas production has slid about 16 percent since 2008, U.S. output has risen 44 percent since 2008. The Eagle Ford Shale formation, the top U.S. gas field by proven reserves, is in South Texas, not too far away, and the Permian Basin and our own Barnett Shale are just a few miles north of that. – This report includes information from the Washington Post.