Never mind low oil prices; Mexico plows ahead with energy reform anyway

HOUSTON — Mexico will continue the push to deregulate its energy markets, even as the price of a barrel of crude oil continues to wallow in the $30s and the world’s energy companies hemorrhage cash, Mexican President Enrique Peña Nieto said at an international oil conference here Monday.

Mexico’s national oil company, Pemex, which has controlled nearly every aspect of the country’s oil production and distribution since its creation in 1938, is preparing for its first competition amid the worst slump in oil prices in 45 years. Officials decided in 2013 to open oil and natural gas fields to foreign companies near the height of the most recent oil boom and before the bust.

An oversupply of crude has caused prices to plummet by as much as 76 percent since mid-2014. Oil has seesawed in recent weeks, dropping to a 13-year low of $26 a barrel Feb. 11. Prices have rebounded since then by 27 percent to $33 a barrel Monday as several major oil-producing nations discuss a proposal to freeze their crude output at last year’s levels.

News of the talks gave investors a glimmer of hope that prices may stabilize, sent U.S. crude prices soaring by 6 percent and buoyed stock markets across the globe. All three major U.S. stock indices rallied Monday.

The volatility hasn’t deterred Mexico, which plans to open its liquid fuel markets to imports in April, a year ahead of schedule, Peña Nieto announced at the IHS CERAWeek conference. The event in Houston is one of the industry’s largest annual gatherings, drawing a crowd of about 2,600 this week to hear panels packed with international leaders and executives from across the world.

“This is not the time to stop,” Peña Nieto said. “This is the time to move forward.” He promised the energy industry a predictable timeline and business climate — “regardless of what happens in the international context” — as it eliminates monopolies over its electricity market and oil and gas development.

OPEC Secretary-General Abdalla Salem El-Badri, who spoke after Peña Nieto at the conference, called a potential output freeze “a first step” that, if it sticks, could be followed by other measures, which he did not specify. His comments were largely credited for the day’s rally in crude prices. The 12 nations that are members of the OPEC account for roughly 80 percent of the world’s oil reserves.

Saudi Arabia, Russia, Venezuela and Qatar, some of OPEC’s biggest members, have discussed freezing production if other oil countries go along with a strategy to boost prices.

Mexico wants to open its oil-rich deep-water fields for bid starting in December, in what’s considered the untapped crown jewel of Mexico’s vast store of hydrocarbons. And it will put its first electric transmission line out for bid in the second quarter of the year — an estimated $1.2 billion, 372-mile line to move wind- and hydro-generated electricity from the Isthmus of Tehuantepec, the narrowest point between the Gulf of Mexico and the Pacific Ocean.

Mexico — and the energy industry as a whole — faces a brutal oil market in the short term.

That’s because world is still awash in too much oil, and a lot of that can be attributed to U.S. shale production, a relatively new technology that blasts chemicals and water through layers of rock and sediment to separate out hard-to-get oil. Shale oil production was virtually nonexistent before 2009, about 17,700 barrels a day across the globe in 2008, according to the World Energy Council.

The International Energy Agency projected Monday that U.S. shale oil output, currently close to 2 million barrels a day, will drop by 600,000 barrels a day this year and an additional 200,000 barrels a day in 2017. The IEA, however, says it will be 2017 before the oil market rebalances itself.

Long term, though, the massive pullback in energy production means there’s likely to be a price spike in the future. Consumers should not be lulled into thinking that cheap oil will be around forever, said Fatih Birol, executive director of the IEA. The Paris-based agency said Monday that it expects Iran, freed from economic sanctions, to increase its production by 1.1 million barrels per day by 2021.

Shale producers, temporarily stymied by low oil prices, will probably boost production again once crude reaches $60 per barrel, Birol said. It will probably take the industry about six months to bring its rigs back online, he said, predicting that the industry will bounce back after 2017.

El-Badri, the OPEC secretary-general, agreed that U.S. shale output will rise after prices recover.

“I don’t know how we’re going to live together,” he said.

Saudi Arabia and Russia have agreed to a “freeze” on the current level of production, a strategy El-Badri said would be evaluated. “Maybe if this is successful, we can take other steps in the future,” he said.

jhiller@express-news.net

Twitter: @Jennifer_Hiller