Mexico’s oil policy change challenges Canadian energy sector – by Jeffrey Jones (Globe and Mail – August 13, 2013)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

CALGARY — A rush of foreign investment in Mexican oil production in the wake of that country’s energy reforms threatens to fuel competition against Canada in the race to supply the U.S. Gulf Coast market with crude.

Mexico’s government is seeking to break a 75-year state monopoly on energy and lure private investors into the oil, gas and electricity industries to boost flagging output and lower energy costs for manufacturers.

The plan from President Enrique Pena Nieto, unveiled Monday, will be sent to the Congress for approval this week. It includes plans to change articles of the Constitution that prohibit private ownership of Mexican oil and introduce profit-sharing contracts.

If enacted, the reforms would mark the largest private sector opportunity in decades for Mexico’s oil and gas industry, which was nationalized in 1938 and is controlled by state monopoly Pemex. The national oil sector has been a source of Mexican pride since then, so approval of the reforms is still uncertain.

Under the planned reforms, Pemex would remain in government hands.

The changes could mean big opportunities for Canadian oil and gas service companies to expand their businesses as investors seek the necessary technology to boost oil and gas production in Mexico’s onshore and offshore fields, and tap shale oil and gas reserves, analysts said.

However, the changes also have the potential to turn on its a head a long-held expectation – that of building Canadian heavy crude production displacing declining Mexican oil supplies over several years.

A timetable is not yet known, but it could take two years to arrest Mexico’s production declines with new drilling and rehabilitation of oil wells with the aid of investment by international players, said Bob Schulz, professor of strategic management at the University of Calgary’s Haskayne School of Business.

Meanwhile, new pipelines – such as TransCanada Corp.’s proposed Keystone XL to Texas refineries from Alberta – and expansion of other systems are expected to start flowing around the middle of this decade, assuming they win U.S. approval, which is anything but assured.

“You better get Canada connected to the U.S. before Mexico figures it out,” Mr. Schulz said.

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