Mexico s Energy Reform

Transcription

1 Mexico s Energy Reform Lourdes Melgar, Ph.D. Undersecretary of Hydrocarbons Ministry of Energy February 7, 2014

2 CONSTITUTIONAL AMENDMENT A historic constitutional energy reform was approved in Mexico in December This is the most significant overhaul of the energy sector in this country in more than half a century: a truly major, better-than-expected reform. Article 25.- Government will: Continue to be in charge of strategic areas. Maintain property and control of entities and new State Productive Enterprises (SPEs). Provide the right conditions to include the private sector in the national economic development. To be in charge of energy planning. Social equity, productivity and sustainability. Article 27. Hydrocarbon resources will remain Mexico s. Petroleum exploration and extraction activities will be carried out by the State through SPE leases and contracts SPEs may work with the private sector. Subsoil hydrocarbons belong to the nation and this should be stated explicitly in leases and contracts. Planning and control of the electric system will be carried by the state. In the case of transmission and distribution of electricity the state will be able to contract the private sector. Article 28. The Mexican Petroleum Fund (a public trust) is established The National Hydrocarbon Commission (CNH) and Energy Regulatory Commission (CRE) are considerably strengthened, becoming Constitutionally Coordinated Entities. Transitory provisions through twenty one articles define the way that secondary laws should be drafted to implement the Constitutional Reform.

3 Oil and Gas

4 REFORM TO ARTICLES 25, 27 AND 28, WITH 21 TRANSITORY ARTICLES ALLOW PRIVATE INVESTMENT IN UP, MID AND DOWNSTREAM. Oil and Gas Reserves Exploration and Production Refining and Natural Gas Processing Transportation, Storage, Distribution and Commercialization The Mexican State, through SENER, manages the country s oil and gas reserves (selection of bidding areas) Entitlements granted by SENER to Pemex (Round Zero) Service, profit/production sharing and license contracts, awarded by the National Hydrocarbons Commission (CNH) to Pemex and/or the private sector Permits for refining and natural gas processing (including petrochemicals), granted by SENER to Pemex and/or the private sector 5 Permits for all transportation, storage, distribution and commercialization activities through pipelines, granted by the Energy Regulatory Commission (CRE) to Pemex and/or the private sector 6 5. Constitutional Article 28 and Transitory Article Constitutional Article 28 and Transitory Article 10

5 OVERVIEW OF THE OIL AND GAS REFORM E&P contracts for public and private companies: license contracts, production sharing contracts, profit sharing contracts, service contracts or a combination thereof. Round Zero. Permit schemes for midstream and downstream. Conversion of PEMEX into a company with freedom to form partnerships, financial and operational autonomy, and freedom to establish its employees wages. New Tax Regime for PEMEX and private companies. Open market for Gas Stations. Independent System Operator for Natural Gas. Strengthening of the Regulators. Mexican Petroleum Fund for Stabilization and Development. Financial Transparency in every contract and bidding round.

6 NEW CONTRACTUAL FRAMEWORK FOR OIL AND GAS EXPLORATION AND PRODUCTION A flexible contracting framework with standard, well-known-by-industry models was established to enable better use of Mexico s resources in order to maximize revenue for the nation: i. Service: Fixed or variable payment where the operator is the responsible for the operations. ii. iii. Profit sharing: % of profits Production sharing: % of production iv. License: Onerous transmission of the hydrocarbons once they have been extracted from the subsoil v. A combination thereof. The approved reform allows companies to report, for accounting and financial purposes, the extent of the contract signed with the Mexican State as well as the expected benefits, as long as it is clearly stated on those leases or contracts that all solid, liquid or gaseous hydrocarbons in the subsoil are Mexico s property. 1. Constitutional Article Transitory Article 4

7 Source: World Rating of Oil and Gas Terms; PFC Energy, Van Meurs Corporation and Roger Oil & Gas Consulting. Production: Oil and Gas Journal (crude oil). Ranking 2012 Country EXPLORATION AND EXTRACTION LEGAL FRAMEWORKS IN Production (2012) mmbd THE TOP 20 OIL PRODUCING COUNTRIES Concessionary/Contractual Framework 1 Russia 10,427 Concessions and production sharing contracts 2 Saudi Arabia 9,813 Concessions 3 United States of America 6,401 Concessions 4 China 4,122 Production sharing contracts 5 Canada 3,127 Concessions 6 Iran 3,000 Profit sharing contracts 7 Iraq 2,918 Profit and production sharing contracts 8 Kuwait 2,754 Service contracts 9 United Arab Emirates 2,653 Concessions 10 Mexico (Before the Reform) 2,548 Service contracts Mexico (With the Reform) 2,548 Service, profit or production sharing contacts and licenses 11 Venezuela 2,479 Concessions 12 Nigeria 2,092 Concessions and production sharing contracts 13 Brazil 2,061 Concessions and production sharing contracts 14 Angola 1,756 Concessions, profit and production sharing contracts 15 Norway 1,618 Concessions 16 Kazakhstan 1,583 Concessions and production sharing contracts 17 Libya 1,402 Production sharing contracts 18 Algeria 1,165 Concessions 19 United Kingdom 890 Concessions 20 Qatar 741 Production sharing contracts

8 STRENGTHENING OF PEMEX Pemex will be transformed into a State Productive Enterprise, with budgetary, technical and operational autonomy (2-year transition). 7 There will be a Round Zero to ensure Pemex s exploration and production investment portfolio. 8 Associations in exploration and production of oil and gas, refining and petrochemicals. Pemex will have a new corporate governance structure, in line with international best practices. 9 Pemex s new Board of Directors will be composed of 5 board members representing the Federal Government (including the Energy Minister who will chair the Board), and 5 independent board members. Pemex will have a more flexible and competitive fiscal regime, so it can retain a larger share of its profits for reinvestment Constitutional Article Transitory Article Transitory Article Secondary Legislation

9 ROUND ZERO FOR PEMEX Pemex will submit to the Ministry of Energy, the entitlement applications for the exploration areas and the production fields that it is able to operate through entitlements. (90 days) The Ministry of Energy, with technical assistance from the National Hydrocarbons Commission (CNH), shall review Pemex s request, and issue the corresponding resolution. 3 Pemex will maintain exploration entitlements in those areas where it has made commercial discoveries or exploration investments. (3-5 year period) (180 days) 6 5 The Ministry of Energy shall determine the technical and contractual guidelines of the bidding round, the Ministry of Finance will establish the fiscal terms, and the CNH shall conduct the bidding round to select the contractor. Pemex may propose to the Ministry of Energy for its approval, the migration of the allocated entitlements into new contracts. 4 Pemex will maintain extraction entitlements in fields in production. 1. Transitory Article 6

10 OIL AND GAS EXPLORATION AND PRODUCTION CONTRACTUAL FRAMEWORK 2 Source: World Rating of Oil and Gas Terms; PFC Energy, Van Meurs Corporation and Roger Oil & Gas Consulting. Production: Oil and Gas Journal (crude oil). 1 Block selection, with technical assistance of the CNH. 2 Technical guidelines of the bidding rounds. Technical design of contracts. 3 Fiscal terms of contracts. 4 Conducts the bidding rounds. Decides on the winning bids Mexican Petroleum Fund for Stabilization and Development makes payments and manages government cash flows. Technical management of contracts. Awards and signs the contracts on behalf of the Mexican State.

11 TRANSPARENCY AND ANTI-CORRUPTION POLICIES IN OIL AND GAS CONTRACTS Bidding rounds and their guidelines will be public. Transparency clauses will be included in oil and gas contracts. Full disclosure of all payments associated to oil and gas contracts. External audits to supervise cost recovery and accounting aspects. The reform mandates the establishment of legal mechanisms to prevent, investigate, identify and punish actions or omissions against the law, as well as acts of corruption in general in the energy sector Transitory Article 9 6. Transitory Article 21

12 MEXICAN PETROLEUM FUND FOR STABILIZATION AND DEVELOPMENT Payments established in oil and gas exploration and production entitlements and contracts Expenditure Federal Budget - PEF (Constant at 4.7% of GDP) Long-term savings (Up to 3% of GDP) When long-term savings surpass 3% of GDP, the excess balance will be allocated as follows: At least 40% Up to 10% Up to 10% Up to 30% Up to 10% Long-term savings (until savings reach 10% of GDP). Universal Pension System Science & technology and renewable energy projects Oil and gas project investment vehicle and infrastructure development Scholarships, connectivity enhancement projects and regional industrial development 9. Constitutional Article 28 and Transitory Article 14

13 Electricity

14 OVERVIEW OF THE ELECTRICITY REFORM Private investment in Generation will be allowed. An independent system operator (CENACE) will implement a Competitive Electricity Market. Joint ventures in Transmission and Distribution between CFE and private companies. CFE will be converted into an energy company with freedom to form partnerships, financial and operational autonomy, and freedom to establish its employees wages. Regulators will be strengthened.

15 OVERVIEW OF THE ELECTRICITY REFORM Generation Generators can sign long term contracts to reduce their market exposure. The spot market will be based on the short-term optimal dispatch. CFE will operate its generation independently from its other activities, and will compete on a level playing field. Marketing Standard Users will receive their service from CFE-Retail, which will buy energy in the spot market and under contract. Qualified Users will be able to buy energy directly or through a retailer. The threshold to be a Qualified User will decrease over time. Power Market Generators and marketers will make their supply and demand offers each day. CENACE will establish the optimal dispatch and will calculate the equilibrium prices. Long term contracts will cover the majority of demand; a relatively small volume will be purchased on the spot market. Capacity markets will be implemented to ensure resource adequacy. Transmission and Distribution The T&D companies will not buy or sell energy; they will only operate the wires. They will charge rates established by the CRE, under incentive-based regulation. CENACE will process payments between market participants and the T&D companies.

16 Further actions

17 FURTHER ACTIONS March Secondary law April Aug Resolution for round zero Sept Dec 2014 Pemex proposal Round zero Regulation exploration Kick off of the Electricity Market June Creation of CENAGAS and CENACE 2015 Kick off First Bidding Round CFE and PEMEX as State Productive Companies

18 Mexico s Energy Reform Lourdes Melgar, Ph.D. Undersecretary of Hydrocarbons Ministry of Energy February 7, 2014

19 DESPITE AN INCREASE IN INVESTMENT IN EXPLORATION AND PRODUCTION, MEXICAN OIL PRODUCTION HAS DECLINED FROM 3.4 MILLION BARRELS PER DAY IN 2004 TO 2.5 MILLION IN Investment in exploration and extraction (Billions of dollars) Oil Production (Million of barrels per day) Price of Mexican Crude Export Mix (Dollars per barrel) Sources: Average price of the Mexican Crude Export Mix, PMI Comercio Internacional Production: Pemex Institutional Database, Investment: Pemex Annual Statistics,

20 Million cubic feet per day BETWEEN 1997 AND 2012, NATURAL GAS IMPORTS INCREASED FROM 3% TO 30% AS A PERCENTAGE OF NATIONAL CONSUMPTION; THIS TREND HAS DEEPENED SINCE 2008, DUE TO THE DECREASE OF THE PRICE OF NATURAL GAS IN NORTH AMERICA. 9,000 8,007 8,000 7,792 (100%) 7,000 6,000 Natural Gas Consumption 6,534 5,651 (70%) 4,576 5,000 (100%) 4,000 4,467 (97%) Natural Gas Production 3,000 2,356 (30%) 2,000 Natural Gas Imports 1,258 1, (3%) * * January July, The Natural Gas Consumption line reflects the addition of Pemex s gas production and total imports. The Natural Gas Production line reflects Pemex s total natural gas production, including the gas it uses in its industrial processes and the supply to final consumers. Source: Mexican Energy Ministry, Energy Information System,

21 Thousands of barrels per day GASOLINE IMPORTS REPRESENTED 25% OF TOTAL CONSUMPTION IN 1997; BY 2012, THAT PERCENTAGE HAD INCREASED TO 49% Gasoline Consumption 811 (100%) (100%) Gasoline Production (51%) (75%) 127 (25%) Gasoline Imports 395 (49%) Source: Pemex, annual average

22 Billions of dollars IN 1997, MEXICO IMPORTED 41% OF THE PETROCHEMICALS IT CONSUMED; IN 2012, 66% OF DEMAND WAS MET WITH IMPORTED PETROCHEMICALS (100%) Demand (66%) Net Imports (100%) 3.62 (59%) Production (34%) (41%) Source: Mexican Energy Ministry, with data provided by Pemex-Petrochemicals and the Mexican Central Bank. 22

23 THE AVERAGE CFE RATE IS 25% HIGHER THAN IN THE US. WITHOUT SUBSIDIES, THE AVERAGE DIFFERENCE IS 73% AVERAGE ELECTRICITY RATES AT FISRST QUARTER OF 2013 (MEX CENTS/ KWH) Subsidio % +123% México EE.UU % % +84% +25% -24% +73% 0 Domestic Residencial High Consumption Alto Consumo Commercial Comercial Public Servicios Service Industrial Industrial Residencial Domestic Farming Agrícola Average Promedio Source: Sener. SIE. DOE, EIA. Rates converted to Mexican pesos with an exchange rate of pesos/dollar, 1Q2013.

24 Mexico s Energy Reform Lourdes Melgar, Ph.D. Undersecretary of Hydrocarbons Ministry of Energy February 7, 2014