Mexico’s state-owned Petroleos Mexicanos — Pemex — may be overhauled, according to disclosures by the new CEO that he wants to form a company within Pemex specifically to go after shale and deepwater Gulf of Mexico (GOM) supplies beyond the country.

Those historic-sounding remarks by Emilio Lozoya earlier this month followed by a week a major policy speech by Mexican President Enrique Pena Nieto on Aug. 12, proposing to open the nation to more shared private-sector energy investment.

While Pena Nieto’s two most recent predecessors tried unsuccessfully to reform Pemex to allow outside investment, recent remarks indicate that he will take a new direction, short of proposing to allow private energy companies drilling in his country to own and market the oil they produce. He instead is proposing constitutional changes that would allow for what were described as a risk- and profit-sharing partnership between foreign firms and Pemex.

Energy observers see the move as an attempt to attract the capital and technology Mexico needs to more fully capture the benefits of its challenging deepwater Gulf of Mexico (GOM) resources and shale oilfields, which are viewed as equally difficult to produce.

The revelations by Lozoya surfaced in a Wall Street Journal report Aug. 19, which indicated he intends by the end of this year to create a new related company to exploration and production (E&P) company to explore in the United States, including U.S. deepwater in the GOM. Presumably, U.S. partners would be involved in the new projects with the company.

Long-time observer of the Mexican energy sector, Gianna Bern, an energy economics researcher, told NGI earlier this month that whether the reforms could be approved are unclear. “We’re early in the game still,” he said. “Progress is being made, though, and the fact that they [Mexico’s political leaders] have gotten this far, with all things considered, is remarkable.”

Bern thinks the key going forward is if the consensus for liberalizing the nation’s energy sector can be maintained among Mexico’s three major political parties — the National Action Party, the Institutional Revolutionary Party and the Party of Democratic Revolution (PRD).

The move by the new Mexican presidential administration comes at a time when activity between U.S. and Canadian operators and Mexican energy officials has never been higher, particularly in building natural gas infrastructure and exports, along with looking at deep offshore GOM resources (see NGI, March 18).

Exports of U.S. gas to Mexico set a record last year, according to the Energy Information Administration (EIA), growing by 24% to 1.69 Bcf/d. Imports now account for more than 30% of Mexico’s gas supply, and the country’s gas usage is at its highest level ever, EIA said (see NGI, May 27).

In the past year, studies have examined the potential for North America to become a global energy leader, and much of the analysis has focused on the need for Mexico to open its energy markets. However, historically, Pemex leaders have been reluctant to drive home efficiency programs within the company for fear labor unrest would be stirred in the oilfields by the most revolutionary of the political activists, including PRD. Nevertheless, Lozoya indicated that longer term he wants to reign in the inefficiencies as a means of saving billions of dollars that can be used to exploit various business development opportunities eyed by Pemex.

Examples cited by Lozoya were a fertilizer plant and the completion of a GOM-to-Pacific Ocean natural gas pipeline that would allow Mexico to participate in liquefied natural gas exports to various gas-hungry Asian nations. The Journal report indicated Lozoya is pointing toward a future Pemex that is “more competitive and transparent,” which, judging from the experience of other Latin American nations with state-owned energy companies, should greatly increase energy production in Mexico, now the world’s fifth largest crude oil producer.

“There seems to be political consensus [in Mexico] that revitalization of the Mexican crude oil market is of increasing importance,” said Bern. “It is important, not only for the nation’s economy, but because Mexico’s crude oil production has been on a steady decline over the past decade” from 3.4 million b/d to current 2.5 million b/d.

Bern said the proposals include establishing a means for private-sector companies to book reserves using Securities and Exchange Commission (SEC) proven reserve criteria. “If they are able to do that, I think that gets them a long way, because [potential private-sector investment] companies want to be able to do that. I think they need to be able to cross that hurdle,” said Bern, adding the caveat that it is not a sure thing the three major political parties will be able to cooperate and get this done.

Two private-sector energy companies with multi-billion infrastructure projects in Mexico, Sempra Energy and TransCanada Corp., are watching the latest developments with a keen eye. “We view any energy reforms that encourage private investment in the energy sector as a positive step forward,” said a Sempra spokeswoman, who noted that Mexico requires a lot more infrastructure to meet its growing domestic demand for energy.

TransCanada’s Karl Johannson, president of its gas pipeline operations, said his company already has a “very successful gas pipeline business in Mexico, and we are looking at participating in power plant competitions as well.” Thus, Johannson said TransCanada is watching the latest developments closely. Similarly, Sempra’s spokeswoman said her company has $2.4 billion in business it gas and electric infrastructure it has accumulated over the past 20 years south of the border.

Weary of left-leaning elected officials in Mexico’s Congress and elsewhere who are ready to keep Pemex a state-owned enterprise at all costs, Pena Nieto did not give any details of how his proposed Pemex-private sector partnerships would develop, but he did make it clear that the state-run oil/gas operations would not be “sold or privatized.”

Within Mexico the political road to winning the constitutional amendment outlined by Pena Nieto looks very difficult, although initial assessments indicate that both houses of Mexico’s Congress are expected to pass the measure. The difficulty grows considerably after that in seeking to get at least 17 of 32 state and federal district legislatures to ratify the change.

Jump-starting Mexico’s economy is an obvious driver behind the proposal. Mexican officials indicated demand for energy in the country is growing so fast that Mexico could turn from an energy exporter to an energy importer by 2020. Mexico now imports almost half of its gasoline, mostly from the United States. Mexican companies pay 25% more for electricity than competitors in other countries, the government has calculated. Although Mexico potentially has some of the world’s largest reserves of shale gas, it imports about one-third of its natural gas and is making moves to increase the imports substantially.