Moving Mexico’s Oil Industry Forward

Moving Mexico’s Oil Industry Forward

On May 20, 2009, then-President Felipe Calderon appointed five commissioners to legally constitute Mexico’s oil and gas regulatory body, the National Hydrocarbons Commission, or CNH for its name in Spanish. Just over four years later, Mexico’s new president, Enrique Pena Nieto sent shockwaves across the global energy world as the country amended its Constitution to break national oil company Pemex’s years-old monopoly and allow private companies to search for and develop its hydrocarbon bounty.

Barely out of its proverbial diapers, CNH was thrust into the pilot seat of the country’s effort to usher in a new oil and gas future. Further establishing itself as an independent upstream regulator was critical. First and foremost was the requirement to develop capabilities to execute an aggressive campaign to develop opportunities for bid rounds and investment by private players, something that had not happened in Mexico for almost 80 years.

Today, as the second tender of private contracts under Round One is held in Mexico City we are witnessing the beginning of what can only be called a new Mexican oil industry. Indeed, financial bids will be opened to determine the winners of the five blocks offered to the private sector for extraction in fields in shallow waters off the coast of Campeche and Tabasco.

The first tender held on July 15 won plaudits for its process and transparency, but fell short in terms of contracts awarded and investment commitments. These processes, however, are organic and evolutionary. Indeed, the lessons from mid-July have greatly informed today’s bidding.

What was learned from the first tender? First, transparency and execution are critically important. But so are competitive fiscal terms as well as clear and unambiguous contractual obligations and terms.  These elements are ever more important given the continued volatility and drop in global oil prices. Regrettably, the current price environment as the second tender is held has only gotten worse.

In an effort to emphasize that the government understands the need to continue to tweak the bidding process, several changes have been made in advance of today’s bidding, beginning with announcement of the minimum value for each block. That change has already been implemented and on September 14, the minimum values of operating profit the government will receive corresponding to each block were announced.

In addition, a revised corporate guarantee has been developed. Companies will now be required to provide a $2.5 million bid security guarantee in total and not per block.

Further, the government has addressed a key concern from the first tender surrounding additional reserves. Specifically, new language will lend clarity and provide successful bidders additional exploration and production rights beyond previously discovered reserves.

Buy beyond the first tenders and Round One, the true backbone of what will constitute a major step forward and give form and function to Mexico’s oil industry in the coming years is also being created. The cornerstone that will enable growth of the new Mexican oil and gas industry is the development of an in-depth knowledge of the country’s vast subsurface.

Given the volatility and inherent high risk of the oil business, much depends upon information and particularly understanding of the country’s geology. Indeed, the industry depends upon and invests in gathering data and acquiring knowledge to better understand a country’s “below ground” opportunity.

Mexico is a notoriously underexplored oil and gas province. Moreover, the country has had a paucity of seismic and other key data. With an eye to the future and in its efforts to create a world class oil market in Mexico, the CNH is making a great deal of progress on overturning the country’s chronic lack of oil and gas data and particularly modern, 3-D seismic information.

The Mexican Congress gave CNH the responsibility to develop and manage the understanding of the country’s subsurface as it pertains to the oil industry. Indeed, the laws enacted in 2014 mandate CNH to create a formal system to deal with this issue. CNH has thus created the National Hydrocarbon Information Center. The Center already houses much of the information gathered by Pemex in the past, and it will receive the new data being generated by a wide range of companies that are currently carrying out seismic, geophysical and other studies.

To wit, CNH has granted 22 permits for 11 private companies to conduct assessments and in-depth studies of various subsoil basins across Mexico. In order to synthesize the information contained in the permit applications, CNH will integrate all the appropriate data into a single map. In short, this effort is aimed at creating a national map and profile to show the best expectation for the industry on areas with the highest prospectivity in Mexico.

All of these pieces are part of CNH’s ongoing mission to facilitate investment at the same time as regulating and rendering the utmost transparency for the nation’s hydrocarbons.

A broader, more in-depth understanding of Mexico’s oil and gas potential will not only enable the government to continue to move forward on oil and gas bidding but also deepen the understanding across all of Mexico vis-à-vis the oil and gas sector. Information is increasingly available to anyone interested. In the oil and gas business, like many other technology driven enterprises, data is king.

Moving Mexico’s oil sector forward requires indefatigable efforts and an understanding that today’s failure often greatly informs tomorrow’s success. The turbulence of today’s oil market is not for the fainthearted and demands constant reappraisal of all facets of the bidding process. But Mexico is committed.

Today’s efforts from bidding to historic data and information gathering are intended to provide a window and boost to the future of the Mexican oil industry.

Managing Energy in Boom Times in Panama

Managing Energy in Boom Times in Panama

Panama’s economy has been booming. High rise buildings and green entryways to Panama City’s new state-of-the art metro have been seemingly sprouting overnight. Foreign Direct Investment grew 32 percent in the first quarter of 2015 and over the last five years, Panama has been one of the region’s fastest growing economies, averaging annual growth on the order of 8 percent. The country’s economic growth has, not surprisingly, also led to spiking demand for energy. Some estimates project power demand growth of around 150 MW per year over the next several years.

Almost 100 representatives from Panama, the United States and across Latin America gathered in Panama City on Sep. 22 to debate how Panama can strike the appropriate balance between continued economic growth and corresponding energy supplies.

In acknowledging the boom, Secretary of Energy Victor Carlos Urrutia underscored that rapid growth has its impacts. Critical for Panama is how the government balances a market approach with continuing to provide secure, reliable access for all citizens of Panama. With the recent adjudication of a major 350 MW tender and contract for the country’s first ever natural gas fired power station, by way of LNG imports, the country is on the cusp of an energy revolution. How the government manages the next 350MW tender, set for later this year, on the heels of the first award is being keenly watched.

 

Secretary Urrutia emphasized the Panamanian government’s efforts to develop a Strategic Energy Plan and to take into account all issues and options; what many call an “all-of-the-above” energy approach. The strategic vision, supported by Roberto Meana, the head of Panama’s regulatory body, ASEP, includes the thorny issue of reducing and targeting subsidies, market competitiveness, but also a dedicated effort to diversify the country’s energy matrix.

At the heart of the discussion were four overarching themes: the role for natural gas, the role for renewable energy, how to manage energy demand, and regional integration.

But it was the role of natural gas that provoked the most debate during the course of the discussions at the Roundtable. The award of a 350 MW project to Gas Natural Atlántico, a subsidiary of AES Corporation, will bring on-line within 30 months Panama’s first natural gas-fired power plant at an estimated cost of $800 – 900 million.

Moreover, the future for natural gas in Panama’s energy matrix beyond just power generation, and more specifically the issue of open access and how the entire country will benefit from the fuel’s arrival in 2018 is a matter of debate between the government policymakers, regulators and private sector.

Adding to the discussion is the Panama Canal.

Deputy Administrator Manuel Benitez discussed the Panama Canal’s efforts underway to study the possibility of building an LNG receiving terminal for power generation and also with the aim of bunkering and providing LNG for ship borne propulsion, particularly as more stringent ship emissions come into effect in the coming years.  As a related element, the expansion of the Panama Canal is slated for inauguration in April 2016. Once the new locks enter into operation, the Canal will be able to accommodate 92% of the world’s ships according to Deputy Administrator Benitez.

It also bears noting that in the discussion of regional integration, there was much applause for the advances of Central America’s Regional Interconnection System or SIEPAC and the Regional Electric Market. Indeed, panelists underscored how critical regional integration and the regional market were for Panama as the system provided much needed relief during the 2013 drought, which hindered the country’s hydropower generation capacity.

The next step for Panama is moving forward with electric interconnection with Colombia, or the Colombia-Panama Interconnection Project. The project has been complicated by numerous environmental and indigenous concerns and broader geopolitical issues. Yet, panelists at the Roundtable concurred that the ICP would be completed by 2020.

Panama has important energy hurdles ahead, but the level of debate and seriousness of focus set forth by policymakers and market participants alike at the Roundtable points to awareness and competency to confront and manage the coming challenges.

To wit, CNH has granted 22 permits for 11 private companies to conduct assessments and in-depth studies of various subsoil basins across Mexico. In order to synthesize the information contained in the permit applications, CNH will integrate all the appropriate data into a single map. In short, this effort is aimed at creating a national map and profile to show the best expectation for the industry on areas with the highest prospectivity in Mexico.

All of these pieces are part of CNH’s ongoing mission to facilitate investment at the same time as regulating and rendering the utmost transparency for the nation’s hydrocarbons.

A broader, more in-depth understanding of Mexico’s oil and gas potential will not only enable the government to continue to move forward on oil and gas bidding but also deepen the understanding across all of Mexico vis-à-vis the oil and gas sector. Information is increasingly available to anyone interested. In the oil and gas business, like many other technology driven enterprises, data is king.

Moving Mexico’s oil sector forward requires indefatigable efforts and an understanding that today’s failure often greatly informs tomorrow’s success. The turbulence of today’s oil market is not for the fainthearted and demands constant reappraisal of all facets of the bidding process. But Mexico is committed.

Today’s efforts from bidding to historic data and information gathering are intended to provide a window and boost to the future of the Mexican oil industry.

Message From President and CEO Jamal Khokhar: Efficient Borders and the North American Integrated Economic Space

Message From President and CEO Jamal Khokhar: Efficient Borders and the North American Integrated Economic Space

Efficient, secure, frictionless borders are a cornerstone of our economic competitiveness, not only in the Cali-Baja mega-region but on the southern border and in an integrated North American economic space.

Mexico, the US and Canada mutually rank as principal partners in each other’s trade relationships and rely on smart borders to power their economies in the global context.

At the Institute of the Americas, from our particular vantage point in San Diego, we recognize the importance of responsible border management to ensuring that vehicles, machinery, medical devices, and agricultural products of Mexican origin or North American co-production cross the border at southern ports of entry and fan throughout North America to reach consumers and households.

 

This is vital not only to the economic prosperity of our region but also to enhancing North American competitiveness overall.

The Institute of the Americas applauds efforts to analyze obstacles to a fully functional border and to find sound, innovative and technologically-driven solutions.

Laurie Black, Lynn Schenk, Dr. Mary Walshok and Sally Carrillo (L-R) give background on the designing of the SENTRI program

On September 22, the Institute of the Americas co-hosted, along with UC San Diego and the Smart Border Coalition, a conference on these important themes. UC San Diego Chancellor Pradeep Khosla, wearing multiple hats as University Chancellor, as well as Institute of the Americas Board Member and Smart Border Coalition member, spoke to his vision of the border of the future. Dr. Mary Walshok, Dean of UC San Diego Extension and also an Institute Board Member, helped frame the discussion by providing vital historical context about the efforts of Congresswoman Lynn Schenk, a visionary California leader who spearheaded the SENTRI program.

We are proud to be associated with the launch of a report entitled Envision 2020 that UC San Diego and Cubic Transportation Systems produced assessing the state of the border and providing key recommendations for the future of the SENTRI program.

We commend the work and collaboration among members of the academic, business and civic communities. Find here the UC San Diego-Cubic white paper, which provides a thoughtful perspective on the border, leverages the technological expertise of UC San Diego’s academic community and serves as an example of San Diego’s public-private collaboration in problem-solving and providing models which may serve other regions as well.

Finally, speaking of the importance of safe and smart borders to shared North American economic prosperity, the Institute will be hosting a conversation October 15 with Canada’s Ambassador to the US, Gary Doer. Please click here for further details.

Chinese President Meets with U.S. Tech Giants on Cyber Issues

Chinese President Meets with U.S. Tech Giants on Cyber Issues

LA JOLLA – Chinese President Xi Jinping stopped in Seattle on the first leg of a state visit to the United States to meet with America’s technology giants and underscore China’s cooperation with U.S. companies as well as its emphasis on Internet security.

Mr. Xi attended a China-U.S. business roundtable on Sept. 23 with 15 executives from 15 companies from each country. Among the U.S. executives at the meeting were Berkshire Hathaway’s Warren Buffett, Amazon’s Jeff Bezos, and Apple’s Tim Cook.  Joining them were executives of Chinese tech giants Baidu, Alibaba and Tencent. The 15 Chinese companies represented at the roundtable have a total worth of US$1.2 trillion of market value, about one-eighth of China’s GDP in 2014. Another focus of Mr. Xi’s Seattle visit was the 8th U.S.-China Internet Industry Forum co-hosted by Microsoft and the Internet Society of China.

These cyber events, which attracted global attention, come as China’s Internet and high-technology industry are burgeoning. China now has 700 million Internet users and its high-tech industry is growing more rapidly than any other sector. The IT industry and technology generally are stimulating consumption as a crucial driving force for continued economic growth in China. Mr. Xi’s agenda in Seattle reflects this reality. As a result, some Chinese and U.S. technology companies have established cooperative partnerships, for example: Baidu will replace Bing as Microsoft’s search engine in China, and Tencent and Legendary Pictures will work together on upcoming motion pictures.

 

China’s corporate giants at Seattle business roundtable

World’s largest search engine in Chinese Mandarin
$71.4 billion market cap
Ranked #11 among innovative companies by Forbes
President Zhang Yaqin, former Microsoft corporate VP

Online and mobile commerce company
$145 billion market cap
IPO on the NYSE in September 2014
Executive chairman Jack Ma Yun, ranked #7 richest person in Tech by Forbes

 

Online social network, e-commerce and games
$181.1 billion market cap
Founded in 1998
Chairman and CEO Ma Huateng, ranked #11 richest person in Tech by Forbes

 

Computer hardware
$16 billion market cap
Acquired IBM’s personal computer business in 2005
CEO Yang Yuanqing

 

Ranked world’s largest bank for three consecutive years (2013 – 2015)
$278.3 billion market cap
Founded in 1984
Chairman & Executive Director Jiang Jianqing

 

Ranked world’s 4th largest public company by Forbes
$199.1 billion market cap
Founded in 1912
Chairman Tian Guoli

 

List compiled by Diying Wu, Institute of the Americas

China boasts about its Baidu, Alibaba and Tencent (BAT), and sees U.S.’s Google, Apple, Facebook and Amazon (GAFA) as its counterpart, though Google and Facebook are currently banned from China. After its noisy exit in 2010 against the backdrop of Chinese censorship, Google is actively preparing to re-enter China with a limited Google Play Store for Android devices as the majority of the software innovations in China are carried out on the Android platform.
Facebook is also working to regain its share of the China market, and its CEO Mark Zuckerberg has made personal efforts towards this end. Zuckerberg’s wife, Priscilla Chan, is of Chinese descent and he learned Mandarin to better communicate with her family. Now Zuckerberg is taking great advantage of this skill to push for Facebook’s reentrance into China. On Sept. 23, after having a brief conversation with Chinese President Xi in Mandarin at the Internet Industry Forum in Seattle, Zuckerberg posted on his own Facebook page that “this was the first time I’ve ever spoken with a world leader entirely in a foreign language. I consider that a meaningful personal milestone”. In fact, as early as October 2014, Zuckerberg visited Beijing’s Tsinghua University and delivered a speech in Mandarin, which greatly impressed the audience and the Chinese media.

U.S.-China Business Roundtable with 15 U.S. CEOs and 15 Chinese CEOs as part of Pres. Xi’s visit to Washington state. Photo via Paulson Institute

The GAFA success story in China is Apple. Its iPhone sales in China increased over 75% in 2014, and more than 25 percent of its latest quarter’s revenue came from China. An iPhone 6s sells at 5,288 RMB (US$830) in China, higher than the retail price in the U.S. It is considered a luxury purchase for most Chinese consumers. Yet Apple products still managed to take over market share and create trending crazes in China. In 2012, a 17-year old teenager from Anhui province sold his kidney to buy an iPhone and iPad2.

Qualcomm, based in San Diego, California, is another U.S. technology company with recent operations challenges in China. In February, Qualcomm was fined $975 million dollars according to Chinese anti-trust regulations. This is the highest fine of its kind in China’s history. China’s National Development and Reform Commission (NDRC) launched its anti-trust investigation against Qualcomm in late 2013 and the investigation lasted more than a year. The company accepted the penalty in exchange for access to the Chinese market. “We end up better-positioned as a company in China as a result,” Qualcomm CEO Steve Mollenkopf said in an interview to Bloomberg. Qualcomm’s recent episode has much to do with Chinese government’s “indigenous innovation” policy, introduced as national strategy in 2005 aiming to encourage technology innovation by domestic companies.

Interactive Timeline of China-U.S. Tech

 Timeline created by Diying Wu, Institute of the Americas

On September 23, Boeing signed a deal with Mr. Xi to sell China 300 airplanes for US$38 billion and to establish a 737 jet-completion and delivery center in China. The Chinese companies involved in the deal are China Aviation Supplies Holding Company, ICBC Financial Leasing Co., Ltd., and China Development Bank Leasing. Boeing estimates that in the next 20 years, China will be its biggest market for commercial aircraft. The company projects that China will need 6,330 new airplanes with a total worth of US$950 billion. As the Chinese middle class grows, more tourists will travel by air. According to China National Tourism Administration, in 2014 there were more than 109 million Chinese tourists travelling abroad. China’s largest low-cost airline Chunqiu said its revenue on international lines increased by 63.13% in 2014.

Interactive Timeline of Boeing and China

Timeline created by Diying Wu, Institute of the Americas

How Much Time do We Have? Climate Change, Energy Efficiency and Renewables in California and Mexico

How Much Time do We Have? Climate Change, Energy Efficiency and Renewables in California and Mexico

How much time do we have? This question posed by lunch keynote speaker, Dr. Veerabhadran Ramanathan of the Scripps Institution of Oceanography was a clever way to get everyone’s attention as to his presentation length and seriousness of the topic. In wide-ranging remarks delivered at a California-Mexico energy workshop, Dr. Ramanathan shared his groundbreaking research on climate change, solutions and the importance of broad, global engagement on the topic. On this latter issue, he was particularly enthusiastic about his work with Pope Francis and the Pope’s history-making encyclical that confronted the issue of climate change head on from a health and social welfare vantage.

On August 19-21, a delegation of Mexican and California energy officials and industry representatives convened in San Diego to share lessons learned on energy efficiency and renewables, as well as the overarching urgency of climate change. Together with the California Energy Commission, UC San Diego and Mexico’s Energy Secretariat (SENER), the Institute of the Americas was one of several partner organizations that organized the technical workshop and site visits across San Diego.

The workshop, a direct output of the Memorandum of Understanding (MOU) signed in July 2014 between the California Energy Commission and SENER, featured presentations by officials and practitioners from both sides of the border. The MOU was signed during California governor Jerry Brown’s trade mission and visit to Mexico City and set forth a series of goals focused on encouraging cross-border renewable energy investments and research and development.

The workshop highlighted best practices in grid management, and the success of microgrids at UC San Diego and in the small desert community of Borrego Springs, as well as the broader policy prescriptions for enhanced efficiency measures and renewable deployment. The policy elements were particularly relevant for the Mexican delegation as the country rewrites its energy laws and launches a new electric sector, wholesale market and regulatory tableau this year.

Given the nature of the very public drought facing California, the water energy nexus also figured prominently in discussions and presentations during the workshop.

But the show-stealer in many ways was transportation. More specifically, the increasingly important role that the transport sector will play in both Mexico and the United States’ efforts to decarbonize their energy matrices, as well as the implications for the electric sector and grid management.

By one estimate, if California’s approximately 30 million automobiles all transitioned to electric vehicles it would require an additional 180,000 MW of electricity supply, or approximately 3 times the state’s peak load today. Meanwhile, Mexico will also see a significant boost in the number of automobiles across the nation which demands a policy debate over the intersection of emissions, fuel supply and vehicle type.

Interestingly, Dr. Ramanathan never precisely answered his question as to how much time we have. But for the crowd gathered in San Diego in mid-August, furthering effective and sustainable energy policies are a key way to confront the ticking clock.

Lorenzo Servitje founder of the Grupo Bimbo Passes Away

Lorenzo Servitje founder of the Grupo Bimbo Passes Away

En nombre del Presidente del Instituto de las Américas y su Junta Directiva, lamentamos profundamente el fallecimiento de Don Lorenzo Servitje, fundador del Grupo Bimbo. Además de ser un orgulloso Mexicano que construyó un negocio reconocido globalmente, Don Lorenzo se caracterizaba por ser un hombre humanitario y visionario. De hecho, Don Lorenzo apoyó la iniciativa del Embajador Ted Gildred, fundador del Instituto de las Américas, de ser miembro de la Junta de Gobernadores Fundadores del Instituto.  “Aún hace 33 años, Lorenzo tenía clara la importancia de fortalecer los lazos entre los países y las economías de las Américas… él tenía la convicción de que servímos mejor a nuestras comunidades y ciudadanos a través de mayores alianzas y colaboración”, relata el Embajador Gildred.
Nuestras sentidas condolencias para la familia y amigos de Don Lorenzo, así como para el Grupo Bimbo.

On behalf of the Institute’s President Jamal Khokhar and its Board of Directors, we are profoundly saddened with the passing of Lorenzo Servitje, founder of the Grupo Bimbo. Beyond being a proud Mexican who created a globally recognized business, Don Lorenzo was known for his humanity and vision.  Indeed, Don Lorenzo took up the invitation of Ambassador Ted Gildred, founder of the Institute of the Americas, to serve on its Founding Board of Governors.   “Even 33 years ago, Lorenzo understood the importance of bridging the countries and economies of the Americas…he stood for that vision that we serve our communities and peoples better through deeper collaboration and partnerships”, recounted Amb Gildred.
Our sincerest condolences go out to Don Lorezo’s family, friends and Grupo Bimbo.

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