Nieto: Mexico’s Energy Transition Will Persevere Despite Dismal Oil Prices

Mexico’s ongoing energy reform is a “paradigm shift” in the way the country obtains, transforms, and exploits its energy resources, President Enrique Peña Nieto told attendees at IHS CERAWeek on February 22.

The reform allows the state to maintain ownership of hydrocarbons underground, but it also encourages private participation in the entire hydrocarbon value chain and “practically in all the electricity industry,” Nieto said at the event in a speech that kicked off the high-profile event in Houston, Texas, this week.

The legislation authorizes private investors and operators to buy, sell, or build new power plants and sell power to a centralized regulatory body that oversees transmission and distribution lines. It also allows power plant owners to sell directly to high-volume users.

An Emphasis on Transparency

The resultant new energy markets are characterized “by openness and competition, and by … transparency and legal certainty,” he said, later underscoring country’s commitment to “transparency and accountability.” “We will continue to work to have an energy sector characterized by regulatory and contractual practices of excellence, which will give total certainty to the investors,” he said.

Nieto said the reform was being implemented “with success and faster than expected.” Since constitutional reform was approved in December 2013 and the associated secondary legislation was approved in August 2014, plans are in effect to put online 21 generation projects—valued at about $7.7 billion—by 2018. Among them are projects to convert seven plants from fuel oil to natural gas.

Mexico celebrated its most recent milestone this January, when it started a wholesale electricity market, Nieto noted. “The key principle of this new electricity market—in favor of consumers—is that the lower-cost electricity is dispatched first,” he said. “Consequently, unprecedented opportunities are opened to investment in the electricity sector.”

Nieto said that in the second quarter of this year, the Federal Electricity Commission would put the “first great transmission line to tender with private participation under the energy reform,” he said. The $1.2 billion project comprises a 600-kilometer-long ultra-high-voltage transmission line that will transmit wind and hydropower from the Isthmus of Tehuantepec in the southern region of the country to power-hungry load centers in the center of the country.

Nieto also noted that Mexico has pledged to procure 25% of its power from renewables by 2024, 40% by 2035, and 50% by 2050.

Dismal Oil Outlook Is an Opportunity

Touching on the deflated price of crude—a theme that seems prevalent at this year’s IHS CERAWeek event—Nieto said Mexico’s ambitions to obtain world-class technological, financial, and risk management capabilities won’t be thwarted by volatile markets.

Any company in Mexico will be able to import gasoline and diesel starting on April 1, 2016, he announced. That measure will help fuel competition in the fuel sector by 2018.

It will mean that state-owned oil company PEMEX will face “great challenges” but also “major opportunities,” he said. “In this regard, PEMEX will have to focus on cutting expenses and reaching greater efficiencies; it will have to prioritize investments; and above all, it will have to take advantage of the opportunities for new partnerships that the energy reform have created.”

Sonal Patel, associate editor (@POWERmagazine, @sonalcpatel)