“Based on my day-to-day experience dealing with clients and different actors in the energy sector, I think the main concern in the industry is that the rules established for private investment are respected,” said Graciela Álvarez Hoth, CEO of risk management and energy consultancy firm NRGI Broker, who has more than 30 years of experience in the Mexican energy sector.
“My opinion is that our country should give a clear sign of confidence to private, national and foreign investors, respecting the contracts of the projects in progress and providing ease for new investments, while always maintaining a balance that favors the energy matrix and national sovereignty,” added Graciela Álvarez, who spoke with NGI’s Mexico GPI as part of an ongoing question-and-answer (Q&A) series about the Mexican energy industry.
Álvarez Hoth, who founded NRGI Broker in 1988, has advised and insured Mexican and foreign companies across the energy industry, including upstream, midstream, downstream, and infrastructure firms. Graciela Álvarez has been ranked by Petróleo & Energía magazine for several years as one of the most influential members of the Mexican energy sector and was recognized as one of the 100 most powerful women in Mexico by both Forbes and local outlet Expansión. She also created “Energy Voices” (Voces de Energía), promoting collaboration and meetings between energy industry members and regulatory authorities to seek solutions to industry issues.
Graciela Alvarez, a graduate of ITESM (Instituto Tecnológico y de Estudios Superiores de Monterrey), is the 44th Q&A in the series.
NGI: Among members of the Mexican energy industry and NRGI Broker clients, what is the main concern in the Mexican energy sector today?
Álvarez Hoth: Based on my day-to-day experience dealing with clients and different actors in the energy sector, I think that in general, the main concern in the industry is that the rules established for private investment are respected. There are proposals for more changes to the secondary laws of the energy reform that are causing uncertainty for existing investments, which has made for a complicated environment coupled with a volatile price per barrel this year.
In the seven years since the energy reform, oil operators have advanced. It is expected that in 2021 the fruits of oil production and resulting profits for the Mexican Petroleum Fund will be noticeable. Much of this is due to operators’ efforts to reduce production costs to guard against low oil prices.
The second major concern is the financial weakening of Petróleos Mexicanos (Pemex). Although the federal government’s energy policy has the clear objective of reinforcing the role of Pemex as the production company of the state, in reality, this year, we have seen a decrease in contracts and budget dedicated to exploration and production, as well as other areas of the oil and gas value chain.
Many situations are attributable to the Covid-19 pandemic. However, news has recently been published about Pemex’s approved exploration plans for the 2021-2023 period in shallow and deep waters, which has generated high expectations that, beginning in 2021, there are greater budgetary resources to reactivate the sector.
NGI: In the last two years, we’ve seen many changes to regulatory agencies, such as CNH, CRE, ASEA, etc. How have these changes to regulators affected members of the energy sector?
Álvarez Hoth: The most important thing for an investor or a company currently operating in the sector is to know the regulation and regulators. Regulatory agencies such as CNH, CRE, ASEA have had to be sensitive and responsive to the changes brought about by the pandemic and simplify their processes by expanding their digital platforms to serve and process the demands of regulated companies more quickly. As a result, we have seen an increase in services or procedures completed electronically or with help desks to resolve paperwork.
Changes to the top management of these regulatory agencies occurred with the new administration of the current government, which resulted in delays during the first months of transition. However, all of these organizations already had developed mature internal structures with sufficient experience to give continuity to the permits and processing procedures. The CRE, for example, was founded 27 years ago and, in the case of the ASEA, we have seen a considerable increase in the approvals for specialist private sector companies such as “authorized third parties” (terceros autorizados) by the agencie
s to be able to support regulated companies in complying with the requirements of the regulation.
The challenge is and will continue to be simplification if we want to have a reactivation of the sector and an increase in private investment.
NGI: In your opinion, what are the most significant opportunities in the energy sector today?
Álvarez Hoth: The challenge is to ensure that the agendas of each group of participants in the sector — from the point of view of private initiative — come together to create a pathway to assure that the energy reform is successful. This means using all possible means including forums, initiatives, conferences, and seminars to show the advantages and benefits of business participation in this sector and provide hard data to broaden the vision of public officials without losing sight of the objective of energy self-sufficiency and sovereignty that our country requires.
Although I consider that there are many business opportunities, the profile and volume of players that will be able to seize them will be smaller, given that a significant capital investment with a vision of long-term recovery will be required.
Among the current opportunities, there is the opportunity to explore, develop, and operate mature onshore and shallow water fields; associate with experienced infrastructure developers in Mexico and abroad in projects; create service provider companies that offer quality measurement methods (hydrocarbon accounting); establish partnerships to improve the distribution capacity of hydrocarbons by pipeline; provide security services for the protection of pipelines and midstream assets; build storage plants for gasoline, natural gas, and gas LP; provide assistance for the construction and reconfiguration of gasoline stations; provide marketing services for natural gas; and invest in the operation of individually branded gasoline stations and Pemex stations.
NGI: In terms of oil and natural gas production and development in Mexico, where do you see the best opportunities today?
Álvarez Hoth: As I discussed in my previous answer, opportunities exist as long as companies have a long-term vision, particularly now that periods for investment recovery have extended across the global landscape.
Proof of this is the investment recently announced by Sempra Energy, and its decision to go ahead with its liquefaction plant in northwestern Mexico. It’s the only export plant for LNG in the world to reach a final investment decision in 2020. Sempra managed to get Mexico’s government to grant it an export permit for the company as the government sees it as mutually beneficial.
In the upstream, the news that Total Mexico transferred 15% of its participation in exploration and production in the shallow waters of the Gulf of Mexico to Qatar Petroleum is a clear example of long-term confidence in Mexico.
As for Pemex, the CNH recently approved its exploration plan to work in deep waters of the Gulf of Mexico and in several onshore assignments in the oil province of the Burgos Basin.
Once again, the CNH recommended evaluating the viability of making alliances or associations and optimizing the execution times of exploration activities, which will unequivocally generate private investment and business opportunities.
NGI: In your opinion, what should be the top priority for the energy sector in the coming year?
Álvarez Hoth: My opinion is that our country should give a clear sign of confidence to private, national, and foreign investors, respecting the projects’ contracts in progress and providing ease for new investments, while always maintaining a balance that favors the energy matrix and national sovereignty.
In the event that investment is strengthened and investors feel confident, that security will translate into the creation of employment sources for more Mexicans, and provide training and technological information exchange that will allow for members of the industry to take advantage of all the opportunities of the trade agreements that we have with the North American block and several other countries in the world.
Editor’s Note: NGI’s Mexico Gas Price Index, a leader tracking Mexico natural gas market reform, offers the following question-and-answer (Q&A) column as part of a regular interview series with experts in the Mexican natural gas market.
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