Mexico’s Fuels Market and Infrastructure – A Complex Transition

Mexico’s Fuels Market and Infrastructure – A Complex Transition

Mexico’s energy reforms have brought a major overhaul of the nation’s entire energy sector. Among the myriad changes being implemented, major opportunities have emerged with regards to Mexico’s fuels and liquids market, as well as infrastructure development associated with fuel sales, supply, storage and distribution. Mexico’s fuels market is the fourth largest in the world and has experienced considerable growth in the last several years making it attractive to a wide-range of companies and investors. Growth is driven by transportation, power demand and underpinned by strong population growth.

Last year saw several deregulation milestones met on the path toward a liberalized fuel market, as well as important advances in open seasons aimed at ultimately boosting related infrastructure, both in liquid fuels and natural gas.  In what has become a rapidly changing market, a growing list of international companies, traders and Mexican firms have begun to develop projects with an eye to establishing themselves in Mexico’s fuel and liquids business.

This “complex transition” was at the center of three high-level discussion panels hosted by the Institute of the Americas on February 27 in Mexico City and attended by over 90 representatives from industry, government, and academia.

Panelists generally agreed that development of the fuel market was on the right track and that the reform measures had boosted investment in energy infrastructure. The proliferation of new market players (40 brands as of this week) in the fuel retail market and the choices being created for consumers is important.

But, there was less consensus on whether Mexico would soon see a truly competitive fuels market that could fully serve the growing demand in Mexico and its citizens, not to mention what the key next steps should be before the July elections. In an interesting development, several speakers put on the table the need for further energy reform in Mexico. Panelists also argued that government and industry alike must continue to aim for efficiency, continuity, stability and long-term regulatory certainty.

Event Summary: The Trump Administration, Latin America and Energy: Mexico, Natural Gas and LNG Exports

Event Summary: The Trump Administration, Latin America and Energy: Mexico, Natural Gas and LNG Exports

Energy continues to be a bright spot in the US-Latin America relationship and new developments, like an uptick in US LNG exports, offer opportunities to increase energy security and cooperation across the Western Hemisphere, said panelists at an event co-hosted by the Inter-American Dialogue and Institute of the Americas on December 15th.

Energy plays a central role in bilateral and trilateral cooperation with Mexico and Canada. The United States is working to expand this cooperation through increased data sharing for cross-border transmission, generation, and renewable energy mapping, as well as through technology sharing for carbon capture and storage, noted Department of Energy Deputy Assistant Secretary Beth Urbanas.

The three countries work on energy issues both trilaterally and through larger multilateral efforts like APEC and the G20. Mexico also recently joined the International Energy Agency and the North American Electric Reliability Corporation (NERC), providing two additional avenues for cooperation. Mexico joining NERC benefits both Mexico and the United States, noted Mark Nelson, regional vice president and director of issues management at Sempra, as Mexico can help provide system reliability and voltage support to the United States in times of energy distress.

Investment by US companies in Mexico following its energy reformhas also strengthened bilateral energy ties. Oil majors are entering the downstream space in Mexico, even though they are largely divesting from those assets in other countries, said Carlos Sole, partner and Latin America practice co-chair at Baker Botts.

A recent uptick in US natural gas exports represents another significant opportunity for US-Latin America energy trade and investment, said John McCarrick, deputy assistant secretary at the Department of State’s Bureau of Energy Resources. LNG exports – which began in earnest just last year – reached 465 billion cubic feet in the first 9 months of 2017, already 2.5 times greater than total 2016 LNG export volumes. LNG exports are projected to reach 4.4 trillion cubic feet by 2035.

At the same time, Latin America is increasing its capacity to receive LNG. Regasification capacity in the Americas, excluding the United States and Canada, will reach 50 million tons in the next few years, said Leslie Palti-Guzman, director of global gas at Rapidan Energy Group. Central America and the Caribbean alone will account for 8 million tons of this regasification capacity, and will be a significant growth opportunity for US LNG exporters.

These terminals may see low utilization rates, however, as LNG is used more as a backup fuel in Latin America. But the flexible contract terms offered by US LNG exporters and the United States’ geographic proximity make the fuel particularly attractive as a backup to baseload power and intermittent renewable energy. In Brazil, for example, US LNG is imported when hydropower supply is lower during the dry season, said Edmar Luiz de Almeida, professor at the Federal University of Rio de Janeiro’s Institute of Economy. In Central America and the Caribbean, US LNG can also help fill the vacuum left by Venezuela’s Petrocaribe shipments, which have fallen sharply in recent years, and a decline in shipments from Trinidad.

Going forward, the US government may try to create a more favorable regulatory environment for gas exports, but the success of US LNG exports also depends tremendously on global gas demand.

By Rebecca O’Connor, Inter-American Dialogue

Brazil Energy Horizon

Brazil Energy Horizon

Brazil’s compelling energy profile demands continued consideration. The country is the eighth largest energy consumer in the world and third largest in the Americas. In terms of production Brazil is the ninth largest globally and trails only the United States and Canada in the Western Hemisphere. In South America, Brazil is second only to Venezuela in oil production terms. But the country faces critical questions for attracting energy investment.

Brazil’s Finance Minister Joaquim Levy and a wide range of government representatives and industry executives convened at the Institute of the Americas’ Brazil Energy Roundtable on October 23 in Rio de Janeiro to contemplate whether Brazil was at the dawn of a new energy era.

Despite strong economic headwinds, Brazil’s energy sector has proved surprisingly resilient. But it is important to disaggregate the various segments of the sector. Significant progress in renewable energy deployment and increased natural gas for power generation, as well as laudatory emissions reductions targets in advance of the Paris climate meeting must be separated from the discouraging performance of Brazil’s oil sector. Even the power sector, though facing financing issues will see more immediate returns from fiscal balance measures being developed by the government. The same is not true for the oil sector.

There are signs that the elements of a broader macroeconomic recovery exist, but only given important contingencies and tough decisions being made by the federal government and all of Brazil. For the energy sector, how the country’s authorities manage the oil sector and adopt a more flexible posture are critical. And while the power sector is, by comparison, in a better position the question of financing and how the BNDES financing gap will be filled remains unanswered. There are a litany of tough choices facing both the government and industry alike in Brazil’s oil sector, not the least of which is how Petrobras will emerge from its debilitating corruption scandal.

Women in Energy in Mexico

Women in Energy in Mexico

On September 27, Jacqueline Sanchez, Energy Policy Associate at the Institute of the Americas participated in a Women in Energy breakfast in Mexico City featuring U.S. Ambassador to Mexico Roberta Jacobson. Amb. Jacobson offered remarks on the importance of the energy sector and its myriad opportunities as a key element for the broader US-Mexico bilateral relationship. At the breakfast, Sanchez joined a distinguished group of female executives, government officials, and representatives from academia and civil society. The event was hosted by Chevron, an Institute of the Americas Energy Steering Committee member and featured a wide ranging discussion of key issues facing Mexico’s energy sector.

International Forum: State, U.S. Economies Depend on Strong Trade Opportunities

International Forum: State, U.S. Economies Depend on Strong Trade Opportunities

Excerpt from CalChamber article

Globally, trade is at a very interesting juncture, Ambassador Jamal Khokhar, president and CEO from the  Institute of the Americas, said to the attendees.

For more than the last half century, the U.S. has led the world in breaking down barriers to trade and in creating a fairer and freer international trading system based on market economics and the rule of law. Increased market access achieved through trade agreements has played a major role in the nation’s success as the world’s leading exporter.

This trend is changing, however, to a more inward view because “large segments of the population have not necessarily benefitted from the gains of trade liberalization that were promised them in the trade agreements,” the Ambassador said.

Ambassador Khokhar explained that it is not the trade agreement’s fault for this predicament. “We are better off with a liberalized trade agenda,” he said. The challenge instead is how to make the trade adjustments in terms of education, job training, job creation, adjusting with new technologies, recognizing that some manufacturing jobs will be lost and new ones created and there’s a balance between the two sides.

Why are trade agreements so difficult to negotiate, the Ambassador asked rhetorically?

“Trade agreements are the only instrument that oblige countries to internalize, ratify into domestic law the agreements reached among countries. So, they are enforceable and there are dispute resolution systems in place,” he said.

It is this package deal that allows countries to load up a variety of topics and problems into a trade agreement. However, the biggest change in trade is new technology, and that is presenting a whole host of new problems.

Global value chains account for 80% of world trade today. Global value chains are companies selling to each other, within the company, or all the people and all of goods from around the world that go into the production of a product or a service.

“In a world where goods, or even cattle cross the border before they’re processed and delivered…how do you define a rule of origin?” Ambassador Khokhar asked. “So global value chains are extremely important and yet our trade agreements are not set up any longer to deal with sophisticated global value chains.”

The debate the world is having about trade and whether it benefits or hurts countries needs to refocus on how technology changes everything.

The Ambassador sympathized that there are people who are hurt, who have lost jobs and explained that we as a society, not necessarily just government, need to think of how to address that and we need to think about how to retrain and create new jobs in some of these new companies.

“Look backwards if you want to, but I think the rest of the world is moving on and I think countries like the U.S. and key states like California control a lot of global leadership,” Ambassador Khokhar said in closing.

Las universidades no son fábricas de startups

Las universidades no son fábricas de startups

Coutesy of PRODEM

En el marco del 7º Seminario Taller Prodem fue entrevistado Carlos Martínez Vela, vicepresidente de Innovación & Entrepreneurship en el Instituto de las Américas.

¿Cuál es el papel de las universidades?

Cuando era estudiante del MIT hace ya varios años, tuvimos un proyecto grande donde hicimos un análisis con 25 casos de estudio, donde consultábamos cuál era el rol de la universidad en el desarrollo económico y, en particular, el papel de la universidad en el crecimiento y transformación de nuevas industrias, de nuevos clúster en ciertas regiones, en distintas áreas.

Un proyecto muy interesante, porque no lo hicimos preguntando a las universidades qué habían hecho, sino que investigamos la trayectoria del desarrollo regional, identificando el camino tecnológico de ciertas industrias y ver a partir de ahí, cuál había sido la contribución de la universidad.

Naturalmente los 25 casos eran todos distintos, sin embargo había temas comunes, y esto se aplica también a Boston, de hecho uno de los casos fue ahí. Y encontramos que el papel fundamental de la universidad en el desarrollo económico es la educación, que si tú le preguntas a un CEO de una compañía de biotecnología en Boston, por qué están alrededor del MIT o Harvard, dicen que es por el talento, no por las patentes. Y aparte de esto, está naturalmente el tema de la investigación, la generación de ideas que son muchas veces la fuente de los productos revolucionarios, a veces no nos imaginamos en el momento actual lo que van hacer en el futuro. La resolución de problemas, la participación de los estudiantes, la facultad, investigadores, colaboraciones que ayudan a resolver problemas en la industria, en la economía o en la sociedad, la diseminación o codificación del conocimiento, a través de la transferencia de tecnología, que es la manera de llevar conocimiento hacia la economía.

Y esta idea de espacio público, el poder de convocatoria que tienen las universidades para juntar actores que a lo mejor no se juntan con facilidad y tener conversaciones sobre el futuro, sobre la economía, sobre la industria, lo cual es muy importante y reconocido.

Esto no significa… obviamente estamos aquí en Prodem con el tema del emprendimiento. Esto no significa que el emprendimiento, los startups y la transferencia de tecnología no sean importantes. Pero quería poner un contexto más amplio. Y en ese sentido, pensar que cuando queremos involucrar a las universidades de una manera más amplia en el desarrollo, hay distintas maneras de hacerlo.

¿Qué se puede se puede esperar y qué no, de una universidad?

No se puede esperar que sean agencias de desarrollo económico, no se puede esperar que salven a la economía regional. Porque son un agente entre muchos otros, sector privado, sector público, gobierno, sociedad civil, etc. Y estos cambios de economías regionales requieren una movilización de los distintos actores en conjunto, para pensar y actuar hacia un futuro económico y social distinto.

Entonces, pensar la universidad dentro de estas funciones, estos roles pero no la salvadora, como un agente muy importante pero no el único.

¿Cómo se traducen los esfuerzos de la investigación al mercado?

Hablando un poco de la traducción de estos resultados de la investigación en economía, como mencionaba en la plática, el MIT tiene un ecosistema interno, donde naturalmente está la oficina de transferencia interna de tecnología, pero está también el centro de prueba de concepto, que se llama “Deshpande Center”, están los premios, las competencias, los clubes estudiantiles, etcétera. Y toda esta infraestructura sirve para brindar este servicio, para que el investigador y los estudiantes que quieran emprender algo, que quieran crear una compañía, licenciar una tecnología, puedan hacerlo. Es un espíritu de servicio, naturalmente esto florece porque hay todo un sistema externo también. En ese sentido, Boston es privilegiada porque ahí se inventó el Venture Capital, en 1946 si no me equivoco. Tiene una concentración de universidades, tiene una cultura emprendedora, grandes compañías, pequeñas compañías, entonces es una sinergia entre lo que pasa adentro de las universidades y lo que pasa afuera de ellas.

Hay que pensar esto en distintos contextos cómo se aplica en todos los contextos. Pero hay ciertos procesos y ciertas funciones que son importantes en todas partes, entonces no necesariamente hay que pensar en replicarse, sino en aprender.

¿En cuanto a reglas?

Hay reglas muy claras y eso es parte del secreto de todo esto. Hay reglas muy claras en cuanto a lo que los profesores pueden y no pueden hacer, cuánto tiempo pueden dedicar a la consultoría versus al trabajo académico, cuánto es el porcentaje de participación que tienen en la startup, cuánto en las licencias. Entonces, esa parte es muy importante, porque parte de lo que estas reglas hacen, es brindar la oportunidad pero también preservar la integridad de la universidad y de la vida académica, que es muy importante también. Las universidades no son fábricas de startups, y es muy importante entender estas reglas para mantener una cierta cultura, porque si orientamos todo a la investigación todas las necesidades inmediatas del mercado, las necesidades conocidas, vamos a perdernos del futuro. Entonces, es importante tener esta infraestructura pero sin olvidar también el tema de la investigación básica que está orientada a cosas que no sabemos cómo se van aplicar en el futuro.

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