Mexico – the New Energy Frontier
- Feb 28, 2018 2:31 pm GMT
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Four years ago, Mexico ended the 75-year monopoly of state oil company Pemex and replaced Mexico’s state-owned utility company. The Mexican government established its first independent power producer market; encouraged investment, innovation, and competition from around the world; and liberalized the value chain from energy generation to storage facilities and petrol stations.
Exploding oil and gas market
This radical shift shook up the oil and gas sector in Mexico and beyond. International energy companies were eager to stake a claim in the tremendous potential of Mexico’s downstream and upstream markets. It is estimated that Mexico could be sitting on more than 100 billion barrels of oil equivalent (boe) with up to 50 billion boe in Mexico’s waters in the Gulf. Mexico also has an estimated 60 billion boe of shale oil reserves – fourth largest in the world. Upstream, Mexico is the sixth-largest petrol market in the world.
Early efforts to realize some of this potential have been encouraging. Italian producer ENI discovered reserves of up to 1.2 billion barrels of oil and a second huge discovery by Talos Energy, Premier Oil and Mexico’s Sierra Energy could hold up to 2 billion barrels of oil. This latter discovery was in a previously unexplored area, demonstrating that Mexico’s potential hydrocarbon resources could be even larger than official estimates.
At the same time, the Mexican government prescribed ambitious new targets for clean energy generation. By the end of 2018, 25 percent of energy generation must be from renewable sources and 50 percent must come from renewable resources by 2050.
For perspective, this 2018 target requires Mexico to match Canada’s cumulative wind farm capacity in just three years – completing in three years what took Canada 23 years. If Mexico manages even half of this target, the installed capacity will equal the entire Danish fleet of wind turbines.
The moving parts in this new market impact the entire global energy sector. Positioned between Pacific and Atlantic transport routes, North and South American markets, US shale pipelines and Chile’s import terminals for natural gas, Mexico’s investors and developers need to make well-informed investment decisions and logistics choices.
Mexico’s markets are also subject to unpredictable weather patterns that affect supply and demand, and equally unpredictable politicians who could change regulatory and trading regimes within the timescales required for new plants to reach operational status.
All of these challenges affect every market participant whether directly or indirectly. Insight and information are essential not just to enter these markets, but to navigate the landscape effectively.
Choosing the right tools for success
Firms entering the nascent Mexican energy market need advanced energy trading and risk management (ETRM) software to monitor and manage every step of the energy value chain. These companies need complete visibility into every transaction and they cannot afford to spend days or weeks consolidating siloed data from multiple systems and spreadsheets. They need to quickly understand the consequences and risks attached to investment and trading decisions.
To stay ahead in this rapidly evolving market, energy companies need one solution that provides real-time demand, supply, and P&L visibility across physicals and derivatives so they can quickly identify exposures. Effectively planning for changing markets requires sophisticated analytics for scenario optimization, “what-if” deals, stress testing, VaR, and other advanced risk management techniques. And the system must capture physical contracts with complex pricing features and manage exchange, over the counter, foreign exchange, and interest rate derivatives.