Current market situation
ENERGY REFORM DRIVING THE MODERNIZATION OF MEXICO'S ENERGY SECTOR
In 2013, Mexico implemented the Energy Reform and by this accomplished the country´s most important economic change in 50 years. The reform opened up the Mexican Energy sector for the first time. The objective is to attract new investors and increase the economic growth in total by boosting the energy sector. This seems to work well, investors and private companies are lining up to take part in the developments on the now open market.
The implementation of the Energy Reform involves several actions already taken by the Mexican government to achieve the vision that 35% of the country´s electricity will be generated from renewable sources by 2024, thus also aiming to incorporate new innovative technologies in the sector.
The modernization of the sector dissolves the monopoly of the two principal actors within the Mexican energy sector, the Federal Electricity Commission (CFE) and Petróleos Mexicanos (PEMEX). Now, private companies are authorized to participate in all areas of the productive chain, with the exception of the electricity distribution network which will remain in the hands of CFE.
The reform also seeks to take advantage of the nation’s oil reserves. Mexico holds the third largest oil reserve in Latin America, after Venezuela and Brazil, with 9.8bn barrels (bbl) as of year-end 2015, according to BMI Research, but has not been able to fully gain from it due to the economic and technological slowdown which has impacted PEMEX in the last decade. But now, with the current reform, the Mexican government expects to attract domestic and foreign investments of nearly $50.50 BUSD between 2015 and 2018.
The Energy Reform consists of several important measures. One is the creation of the Wholesale Electricity Market. This will allow new companies to participate as electricity suppliers, providing electricity at competitive rates which benefit Mexican businesses, industries and households. Another significant part of the reform is the introduction of Clean Energy Certificate, which has established that by 2018 a minimum of 5 percent of the electricity consumption from large users must be generated from environmentally friendly energy sources. By 2019 this share should rise to 5.8 percent, demonstrating a continuing initiative for the promotion of clean energy generated from renewable sources like wind, water or solar energy. The aim is to fulfill Mexico’s global commitments in environmental matters and combating climate change.
What does the future hold?
RECENT RENEWABLE TENDERS WILL BOOST THE CLEANTECH SECTOR
From 2014 to 2015, installed capacity for clean energy generation grew 7.0 percent; Mexico today has enough capacity to generate 28 percent of its energy needs from clean sources and is on its way to reaching its goal to raise it to 35% by 2024, with intermediate goals of 25% in 2018 and 30% in 2021.
The Mexican government estimates that Mexico will require investments in electricity infrastructure of $131 BUSD between now and 2030 – including $15 BUSD in transmission lines, which for the first time will be open for private investment.
As result of the First Renewable Energy Auction, 11 companies will install 18 new wind and photovoltaic projects to produce 1,720 megawatts of power with an estimated investment of $2.1 BUSD by 2018.
In the Second Renewable Energy Auction companies won contracts to build about 5,000 megawatts of new clean energy-generating capacity with an investment of around $6.6 BUSD.
In the electrical transmission sector, CFE recently published the pre-conditions necessary for participation in the tender of the first public-private partnership (PPP) of the new energy scheme. It consists of the construction and 25 years of operation of the first direct current transmission line (HVDC). It will carry 600 kilometers of wind energy produced in the state of Oaxaca to the center of the country, with an investment of up to $1,700 MUSD.
BIDDINGS FOR A MORE PRODUCTIVE FUTURE OF THE MEXICAN OIL AND GAS SECTOR
The official end to the 76-year monopoly of state-owned oil company Pemex manifests a new era of productive potential. In several tenders contemplated since the Energy Reform, the Oil & Gas sector has been completely opened for private investors.
Although lower oil prices have discouraged global producers from increasing investment in frontier and higher risk upstream land, it is expected that Mexico will be an outperformer among hydrocarbon producing countries. This due to its historic and robust sector reforms coupled with a vast underground potential.
- Tender 1. Shared Production Contracts for exploration and extraction in shallow waters.
- Tender 2. Shared Production Contracts for the extraction of hydrocarbons in shallow waters.
- Tender 3. License Agreements for the extraction of hydrocarbons in terrestrial areas.
- Tender 4. License Agreements for the exploration and extraction of hydrocarbons in deep waters.
- Tender 1. Shared production contracts for exploration and extraction in shallow waters.
- Tender 2. License agreements for exploration and extraction in terrestrial areas.
- Tender 3. License agreements for the exploration and extraction in terrestrial areas.
The first round of tenders (Round 1) requires an estimated investment of $8,500 MUSD annually until the end of 2018. As part of this, 156 blocks were offered of which 96 corresponded to exploration and 60 to extraction projects.
Whilst the strengthening of crude oil benchmark prices over the year helped stabilize Pemex losses, the price of Mexican crude oil remains at historic lows, deeming the majority of its upstream operations unprofitable. Therefore, it is expected that Pemex will remain under significant financial and operational strain over the remainder of 2016 and 2017.
Opportunities according to Business Sweden Mexico
SWEDISH INNOVATION CAN HELP INCREASE RENEWABLE ENERGY USAGE IN MEXICO
Mexico has enormous potential in practically all renewable resources and is on its way to position itself as one of the countries that invests most in renewable energies in the world. At the same time, thanks to recent reforms in the energy sector, barriers which prevent the development of new generators, technologies, markets and consumers are being eliminated.
The reform is driving the modernization of the Mexican energy sector, turning state-controlled enterprises to private investments and promoting the use of renewable energies. This opens up for international companies, not least Swedish, to seize the promising new business opportunities. The Swedish industry has been involved in several seminars as well as workshops with the main key actors in the Mexican energy sector, which means Sweden is an important partner for Mexico in its strive to reach the objective of significantly raising the usage of renewable energies in the country, while simultaneously providing the necessity for Swedish innovative solutions and potential for investors that may reap the benefits available in this renewed market.
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