Mexico’s president-elect Andres Manuel Lopez Obrador will reportedly suspend oil auctions for at least two years, according to the Wall Street Journal, with some experts believing that his administration will not hold any new oil auctions at all during his six-year term.
Obrador has also vowed to review the 107 contracts already awarded to companies through auctions over the last few years to check for corruption, although he has said he would not try to invalidate them so long as they check out.
Also, the new President wants to revise some of the energy laws that govern the oil and gas sector, which could dramatically alter the landscape for foreign oil and gas companies.
Obrador long opposed the historic reforms that ended seven decades of state control over the energy sector, although he moderated his position during this year’s presidential campaign.
But, rolling back the reforms would be exceedingly difficult, requiring a change to the country’s constitution. Instead, Obrador wants more modest, though still significant, legislative changes.
Obrador will pursue legislative tweaks that bolster the power of state-owned Pemex, while weakening the regulatory body that has pursued a technocratic approach and presided over the oil auctions over the last three years.
Obrador desired changes include allowing Petroleos de Mexico (Pemex) to choose its own private-sector partners, without needing the approval from regulators. Current rules require Pemex to partner with the highest bidder for blocks put up for a farm-out.
He wants the government to be able to award Pemex with oil blocks directly. And he wants to make Pemex the sole marketer of oil produced by private firms.
These changes would amount to a partial rollback of the energy reforms, re-empowering Pemex and government control over the oil sector.
“If licensing rounds are canceled and joint ventures are the only vehicle for entry to the country, it reflects a consolidation of power within” Pemex. The idea is to capture a greater portion of the benefits of oil and gas development for the country, while also building up expertise for local industries.
That means that if a company like ExxonMobil or Chevron or some other outside entity wants to drill for oil in Mexico, it would need to source a certain percentage of equipment and services from within Mexico.
Meanwhile, in addition to the legislative changes to the energy reforms, Obrador’s core energy plan consists of pouring billions of dollars back into Pemex for oil exploration, with a particular focus on revitalizing the downstream sector.
He wants $2.6 billion to rehabilitate Mexico’s six aging oil refineries, plus more than $8 billion to build a new refinery from scratch. The idea is to cut down or even eliminate gasoline imports from the USA.
Mexico’s oil production has been declining for over a decade, falling to 1.9 million barrels per day recently, down from 3.4 mb/d in the mid-2000’s. Obrador is aiming to boost production by 600,000 bpd over the next two years, which will be a monumental task. If he is to succeed, Obrador is betting that Pemex will lead the way.
Oil Price.com / ABC Flash Point News 2018.