It has been two years since the Mexican Constitution was amended, and roughly one year and a half since the implementing legislation and regulations were published. The Mexican Government has been working thoroughly to issue “tertiary” regulations for all sectors impacted by the reform. As a consequence of all these activities, investment opportunities have materialized giving substance to a new and growing energy marketplace in Mexico. Let us look at some of the main developments that we have witnessed in this implementation phase, one that is still to see its full potential
Oil & gas (Upstream,
Midstream and Downstream)
Round 1 - Exploration and Extraction Contracts (E&E
Contracts). Round 1 has triggered the first round
of tenders organized by the National Hydrocarbon
Commission (CNH), which purpose is the award of
E&E Contracts. Four bidders have been organized
in Round One. The E&E Contracts for the first three
bids have been awarded and included Production
Sharing Contracts and contracts for onshore and
shallow water blocks. The fourth tender comprises
the award license contracts for deep-water blocks. At
this time significant opportunities exist in farm-outs associated with the E&E Contracts awarded in the
first three tenders and significant association opportunities
related with the fourth tender.
Midstream and Downstream. The midstream
sector has been very vibrant. The Federal Electricity
Commission (CFE) has been organizing
public bids seeking to award long-term transportation
services contracts (for natural gas).
In addition to these bids, the Energy Regulatory
Commission (CRE) issued specific regulations
to organize detailed natural gas, crude oil, petroleum
products and petrochemical midstream
activities. As a result there is increasing interest
of national and foreign investors to develop the
required infrastructure, and, with CRE leading a
new drive to promote open access in midstream
infrastructure, a mature secondary capacity market
is growing at the same time.
As for the downstream sector, the Mexican
government lifted the ban on imports of gasoline
and diesel. The ban was supposed to be lifted in
January 2017. However, the fact that that transportation
and storage of petroleum products is
liberalized and that these products will be imported
starting on April 2016, creates substantial
opportunities in this sector.
Electric energy
Implementation of this segment of the reform has been
moving slower than the oil & gas upstream and midstream
sectors (due to its complexity). So far, the Wholesale
Electricity Market (WEM) guidelines have been issued,
along with other regulatory instruments. However,
a number of new regulations must be issued so that the
WEM is fully implemented. To date, bilateral transactions
can be carried out; spot transactions will come after,
once the relevant regulatory instruments are issued.
The National Power Control Center (CENACE)
organized an auction with the purpose of awarding
a long term Power Purchase Agreements (PPA)
to sell energy, power and clean energy certificates
to the CFE. This auction is the result of the new
market structure.
As for opportunities in this sector, the most obvious
opportunities that exist are: (i) potential Mergers
and Acquisitions transactions with companies that are
awarded PPA’s derived from the long term auction;
and (ii) grandfathered generation projects with PPA’s
already executed.
All in all the energy sector in Mexico as well
and vibrant. We are convinced that a “first come,
first served” applies in the sense of companies that
engage in these developments early on will benefit
significantly compared to others that decide to follow
a “wait and see” approach