Mexico’s Oil Auction: short-term disappointment v long-term progress

July 16, 2015

7/16/2015 Beyond Brics, The Financial Times

By Duncan Wood, Director, Mexico Institute

Oil Rig 2 by Flickr user tsuda Photo by Flickr user tsudaOn Wednesday July 15, Juan Carlos Zepeda, the president of Mexico’s National Hydrocarbons Commission (CNH), announced the results of bidding for exploration contracts in 14 shallow water blocks in the Gulf of Mexico, the first time in over 75 years that production-sharing contracts have been awarded in the country. The results were eagerly awaited by energy industry analysts the world over. As the envelopes began to be opened, the president’s office and the CNH tweeted an inforgraphic stating that the process would be deemed a success if four to seven contracts were successfully awarded.

In the end, only two blocks were awarded, both to a consortium formed by Sierra Oil of Mexico, Talos Energy of the US and Premier Oil of the UK. The government received offers from just nine bidders (five individual companies and four consortia), a pitiful tally given that 49 companies each paid $365,000 to enter the data rooms and 25 of those companies pre-qualified to bid. Of the majors, only ENI and Statoil made bids, leaving most of the big names on the sidelines.

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Mexico Energy Reform Starts with Thud in Offshore Oil Auction

July 16, 2015

7/15/2015 BloombergBusiness

Oil Rig 2 by Flickr user tsuda Photo by Flickr user tsudaMexico’s first auction of offshore oil leases fell short of the country’s expectations as several majors decided not to participate.

Only two of the 14 shallow-water blocks released on Wednesday received qualifying bids. Exxon Mobil Corp., Chevron Corp. and Total SA passed on the country’s sale of territory in the Gulf of Mexico, 77 years after the country nationalized crude. The 14 percent success rate was less than half the 30 percent to 50 percent goal that the government said would be its minimum for judging the event a success…

“This has to be crushingly disappointing for the government,” Duncan Wood, director of the Mexico Institute at the Woodrow Wilson International Center for Scholars in Washington, said Wednesday. “It has to be seen as a very clear message that they need to do a lot more to make the oil and gas opening a success.”

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Historic Mexican Oil Tender Fails to Attract Investors

July 16, 2015

7/16/2015 Financial Times

oil rigsCrestfallen Mexican officials admitted that the historic tender to open the country’s oil sector to private investors for the first time in 80 years had fallen well short of expectations after only two of the 14 exploration blocks on offer were awarded.

In spite of government hopes of attracting an array of companies and netting some $18bn in investment if all blocks had been awarded on Wednesday, the same consortium comprising Mexican group Sierra Oil & Gas — Talos Energy of the US and Premier Oil of the UK — scooped both of the blocks…

….But as Duncan Wood, director of the Mexico Institute at the Wilson Center, noted, officials had been stressing all along that the only tenders likely to be impacted by the price fall were those for shale prospects, not those in cheap-to-develop shallow waters. “I think that has to be seen as an excuse,” he said. “The blocks on offer just weren’t particularly attractive.”

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Water Scarcity Could Deter Energy Developers From Crossing Border Into Northern Mexico

June 30, 2015
In one conservation effort near Cuatro Cienegas, a  pool named Poza Escobedo, on the property of cattle rancher Alfonzo Gonzalez, was restored to its original state, leading the area around it to regenerate its humidity and lush flora and fauna.

In one conservation effort near Cuatro Cienegas, a pool named Poza Escobedo, on the property of cattle rancher Alfonzo Gonzalez, was restored to its original state, leading the area around it to regenerate its humidity and lush flora and fauna.

Day 5 of our on-going article excerpts. Check out the blog again tomorrow for more, or head straight to our website for the remainder of the article.

Water Scarcity Could Deter Energy Developers From Crossing Border Into Northern Mexico

by Keith Schneider

A Desert Oasis That is Drying

There is virtually no surface water available in this part of the Chihuahuan Desert, an expanse of thin pads of grama grass and stands of creosote bushes and mesquite. Coahuila receives little more than 300 millimeters of rain annually (12 inches), according to Conagua. It is the second driest place in Mexico and ranks with Egypt and the Arabian Gulf as among the driest places on Earth.

That is what makes the running streams and desert marshes of Cuatro Ciénegas, a half days’ drive south of Piedras Negras, so rare and such a valuable reference for the ecological disruption and economic dislocation that can occur with mistakes in water supply and use. Until three decades ago the 215-year-old farming community was a farm and business hub set amid a thriving oasis where vineyards and orchards of pomegranate, walnuts, and peaches were irrigated with water drawn from clear, spring-fed streams and pools.

In one conservation effort near Cuatro Ciénegas, a  pool was restored, leading to the recovery of riparian vegetation. Despite management oversight since the mid-1990s by Mexico’s national parks agency and designation as an international biosphere reserve, Cuatro Ciénegas is steadily drying up. Photo © Janet Jarman/Circle of Blue.

Outside town, thick stands of marsh grasses grew as tall as a man. In the 1960s, Mexican and American biologists and ecologists began to swarm across the 150,000 hectares (370,000 acres) of desert pools and wetlands, discovering a biological treasure of plants and animals so abundant and distinctive they likened Cuatro Ciénegas to the Galapagos Islands.

Today, despite management oversight since the mid-1990s by Mexico’s national parks agency and designation as an international biosphere reserve, Cuatro Ciénegas is steadily drying up. Vinos Vitali, a winemaker and lifelong resident, told a University of Texas video team, “There used to be a lot of water here and a lot of fruit. Now there’s no water and nothing is left.”

Alfonso Gonzalez, a rancher in town, added, “You’re seeing a crisis now because the water has not been sustainably managed.”


Texas to pump gas to Mexico

June 29, 2015

06/29/15  The Monitor

natural gas drillA proposed pipeline project to supply Mexico with natural gas from Texas would pass through Brownsville, though the exact route appears yet to be determined.The Federal Electricity Commission (CFE), Mexico’s state-owned electric utility, recently issued a request for proposals for construction of a $1.5 billion, 155-mile pipeline from Nueces County to Brownsville, where it would connect with a $3.1 billion, 500-mile underwater pipeline to the Port of Tuxpan in the state of Veracruz, Mexico.The South Texas-Tuxpan pipeline would cross the border into Matamoros before turning toward the Gulf of Mexico.

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Water Scarcity Could Deter Energy Developers From Crossing Border Into Northern Mexico

June 26, 2015

Day 3 of our on-going article excerpts. Check out the blog again on Monday for more, or head straight to our website for the remainder of the article.

Water Scarcity Could Deter Energy Developers From Crossing Border Into Northern Mexico

by Keith Schneider

Coahuila Says It’s Ready

Whether the shale gas fields of Coahuila and its neighboring states are included in the offering, though, is not certain. The national government has expressed concern about low gas and oil prices, and about security. Northern Mexico is the base of operations of “Los Zetas,” the most technologically advanced, sophisticated, and dangerous Mexican gang, which has infiltrated the state’s coal sector and terrorized several energy exploration teams.

The Governor of Coahuila, Rubén Moreira Valdéz, among the industry’s biggest boosters, is not intimidated. Moreira is pressing the national government to open bidding for development rights in his state to keep a promising oil industry job boom going. Earlier this year, during a shale development conference in Mexico City, Governor Moreira told attendees that “the economic development of shale oil and gas, and related investments, has generated more than 800 shale gas and shale oil jobs” in Coahuila.

The Duñas de Yeso are unique in Mexico and are often compared to the White Sands national monument in New Mexico. The dunes were formed over thousands of years by sand grains moved by the wind from deposits left on the banks of the Laguna Churince during its periodic ebb and flow. Since surface water on the lake has disappeared completely in the past few years, conservationists fear that this process has now been interrupted, with unpredictable consequences for this natural wonder and its unique bio system.

The Duñas de Yeso are unique in Mexico and are often compared to the White Sands national monument in New Mexico. The dunes were formed over thousands of years by sand grains moved by the wind from deposits left on the banks of the Laguna Churince during its periodic ebb and flow. Since surface water on the lake has disappeared completely in the past few years, conservationists fear that this process has now been interrupted, with unpredictable consequences for this natural wonder and its unique bio system.

 

Executives of Pemex, Mexico’s national oil company, join administrators in Mexico’s Ministry of Energy in projecting much larger returns. Two years ago the U.S. Energy Information Administration estimated that northern Mexico reserves held 13 billion barrels of shale oil and 600 trillion cubic feet of natural gas, ranking the region as one of most potentially productive shale energy zones on the planet.

Pemex anticipates that the oil and gas producing basins of Coahuila and neighboring Nuevo Leon could attract over $US 100 billion in investment to drill 8,000 to 10,000 oil and gas wells. Coahuila state authorities added that they expected $US 64 billion of that total to be invested in their state, and that 240,000 jobs would result. Earlier this year a report by the University of Texas at San Antonio, Universidad Autonoma de Nuevo Leon, Asociacion de Empresarios Mexicanos, and the Wilson Center’s Mexico Institute was similarly enthusiastic. The report asserted that Mexico is in an ideal situation to reap the benefits of unconventional extraction techniques.

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Water Scarcity Could Deter Energy Developers From Crossing Border Into Northern Mexico (Part 2/8)

June 25, 2015

Day 2 of our on-going article excerpts. Stay tuned for more!

Water Scarcity Could Deter Energy Developers From Crossing Border Into Northern Mexico 

by Keith Schneider

A Confrontation in Approaches

Such issues anchor the momentous and era-changing choices that the desert Mexican state of nearly 3 million residents faces. In large measure shale oil and gas drilling is a 20th century construct, a readily recognizable strategy to mass potentially enormous energy resources, intensive industrial infrastructure, and huge sums of financial capital to achieve heightened economic development. In short, drilling a lot of oil and gas wells, and building a transport and processing infrastructure, is a familiar formula for growth.

But is the plan for mammoth oil and gas development potentially reckless? How much of what’s envisioned in Coahuila is really possible in the challenging demographic, resource-scarce, and drying conditions of the 21st century? In other words, Coahuila closely resembles southern Mongolia, northern China, the American West, Australia, and southern Africa, where growing cities, agriculture, and energy development fiercely compete for resources, especially diminishing supplies of fresh water.

Giant sprinkler machines called ‘Pivote Central’ bring water to alfalfa fields in the Valle Hundido near Cuatro Cienegas. The wheels pivot around a center, connected to a well that supplies its water. The level of the aquifer that feeds these fields has dropped so much in the past decade that the surface water on the nearby lake Laguna Churince has completely disappeared. Residents are unsure which companies are behind the large alfalfa fields, but they speculate that they are related to large dairy farms near Torreón that use the alfalfa to feed their livestock. Officials estimate that there are more than 30 of these pivotes in the area.

Giant sprinkler machines called ‘Pivote Central’ bring water to alfalfa fields in the Valle Hundido near Cuatro Cienegas. The wheels pivot around a center, connected to a well that supplies its water. The level of the aquifer that feeds these fields has dropped so much in the past decade that the surface water on the nearby lake Laguna Churince has completely disappeared. Residents are unsure which companies are behind the large alfalfa fields, but they speculate that they are related to large dairy farms near Torreón that use the alfalfa to feed their livestock. Officials estimate that there are more than 30 of these pivotes in the area.

The confrontation is so fraught with ecological urgency and climatic change that decades of entrenched regional economic policy and resource practices are shifting. Australia rewrote its water use statutes and spent billions of dollars to rebuild its irrigation network in the Murray-Darling Basin following a vicious 12-year drought. China shifted its major grain producing region to the wet Northeast and launched the world’s largest solar and wind energy sector to reduce water consumption in the drying Yellow River Basin. In the United States, a four-year drought prompted California to issue the first mandatory water restrictions in its history. The state also is much more closely overseeing water use and wastewater disposal in its oil industry, the nation’s third largest.

For the time being, the mega energy development paradigm prevails in Coahuila. Sometime later this year, or early in 2016, oil and gas companies could provide more insight into what they think is possible in the desert when Mexico opens bidding for oil and gas development rights to foreign companies. The new market is due to a change in Mexico’s Constitution in 2013, and new regulations in 2014, that made foreign investment possible in the country’s oil and gas sector.

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