• Opportunities
    & trends

    in the Mexican Energy Sector
  • Benjamín Torres Barrón and Jorge Corella-Martínez
    Partner and Associate at Baker & McKenzie
  • More than two years have passed since the Mexican Constitution was amended to set the foundation for opening the Mexican energy sector, which, investmentwise, was considered as one of the most closed regimes in the world. As the Energy Reform fosters private participation, opportunities in the sector have emerged and show a considerable growth

    Hydrocarbons sector opportunities
    The hydrocarbons sector entails many different avenues of opportunities. In upstream, private parties may now conduct exploration and production (E&P) activities by executing a contract with the National Hydrocarbons 30 contracts have been awarded under 3 different public tenders for a total expected investment of 6 billion USD. There is an ongoing bidding process considered by upstream players as the most exciting of all, comprising 10 deep water E&P areas located at the Gulf of Mexico with a water depth from 500 to 3,600 km and 10,537 MMboe of total prospective resources. The contractual modality for such bidding is a license contract, allowing private parties to own 100% of the extracted resources upon payment of certain fees and royalties to the Mexican State.

    Commission (CNH), acting on behalf of the Mexican State. E&P contracts are awarded by CNH through public tenders under which any foreign or Mexican company may participate. However, only Mexican companies that are tax residents in Mexico and having an exclusive corporate purpose of E&P may enter into contracts with CNH. Currently, Midstream and downstream opportunities are also expected to attract investment. The National Center for Natural Gas Control (CENAGAS) anticipates a 5,159 km increase of transportation pipelines by 2019, requiring an estimated investment of 10.19 billion USD. Among the relevant projects to be tendered in 2016 is the construction of the “Los Ramones-Cempoala” pipeline which will go from north to central Mexico with a length of 855 km and an estimated investment of 1.6 billion USD. Moreover, fuel markets (i.e. gasolines and diesel) were finally opened on January 2016 and now other brands different from Petróleos Mexicanos (PEMEX) may sell fuels to the public. Also, gasolines and diesel may be imported into Mexico as of April 2016, an activity previously reserved exclusively to PEMEX.

  • Power sector opportunities
    For the power sector, the main opportunity for private investment is in the power generation industry which has been broadly liberalized. Private parties may now freely generate power for self-purposes or for selling it into the newly introduced Wholesale Power Market. Only Mexican companies or individuals may request and obtain a generation permit from Energy Regulatory Commission (CRE). The average time to obtain a permit is of 4 to 6 months and companies do not necessarily require to have power generation activities in their corporate purpose. Although transmission and distribution activities remain reserved to the Mexican State, private parties could form associations or enter into agreements related to these activities. It is expected that by the 3rd quarter of this year a tender will be launched to invite privates to participate in the installment of transmission lines. The Mexican Government estimates a total investment of 127 billion USD in the power sector during the following 15 years, by increasing the generation capacity to 60 GW and to extend the transmission infrastructure into an additional 25,000 km.

    How to react to the new opportunities?
    The Mexican Energy Reform is a complete game changer. Interested parties shall exploit the opportunities proactively but with a dose of caution. Investors, consultants and even the Mexican authorities will naturally experience a learning curve prior to dominate the rules for the game. But exploring them now can turn into benefits such as acquiring experience, market knowledge, developing a network and clarifying uncertainties and questions for any particular process.