OBG talks to Pedro Joaquín Coldwell, Minister of Energy

Interview: Pedro Joaquín Coldwell

What exploration measures have been taken to help halt the further decline of oil production?

PEDRO JOAQUÍN COLDWELL: Had the constitutional energy reform not been passed, Mexico would have run the risk of becoming completely dependent on imported energy in just a few years. With the reform, this trend will be steadily reversed. Even though we invest more and more in the exploration and extraction of hydrocarbons, oil production fell from 3.4m barrels a day (bpd) in 2004 to 2.5m bpd in 2012. Under the new post-reform model, national and international companies will be permitted to invest in Mexico either by themselves, or in association with Pemex and/or other firms. This reform establishes a modern legal framework that includes important provisions: i) service contracts will be paid in cash; ii) shared utility contracts will be paid with a percentage of the project’s profits; iii) shared production contracts will be paid with a percentage of the production; and iv) licensing contracts, which will allow a transfer payment of hydrocarbons once extracted from the subsoil. Concurring public and private operators in the oil industry will increase investment, as well as productive activities in this sector. At the same time, the Mexican state will transfer geological, financial and environmental risks involved in exploration and extraction activities to operating companies. The new contracts will allow an overall increase in capacity, and it is estimated that Mexico could raise oil production to 3m bpd by 2018, and to 3.5m bpd by 2025. In the case of natural gas, production may rise from the current 5.7bn cu feet per day to 8bn by 2018, and to 10.4bn by 2025.

How will you attract investments to non-conventional energy segments, such as shale gas?

JOAQUÍN: In the next decades, Mexico should bet on its non-conventional, difficult-to-access petroleum potential. Our prospective resources at shale and deepwater fields are 60bn and 27bn barrels of oil equivalent, respectively. Together they represent 75% of our estimated total resources. Even though we have this potential, the lack of investment and execution capacity has meant that Mexico has not marketed a single barrel of petroleum or molecule of unconventional gas.

The new range of contracting options included in the energy reform will increase investments by many operating companies in the oil industry. The Mexican state will have different contract options, which will be adapted to the geological and technical characteristics of each hydrocarbons field. This new flexibility will give Mexican industry a competitive advantage and will bring in additional investment, while at the same time it will maximise our nation’s petroleum income. This new contract regime will result in a distribution of costs and risks less onerous for the state, while multiplying exploration and extraction activities at shale and deep-water fields.

What is the projected energy mix for the country?

JOAQUÍN: We are aware that the path to sustainability requires a structural change in the way we relate to energy. Our legislation establishes that 35% of electricity should come from non-fossil fuels by 2024. If properly used, our potential for renewable energy resources will allow us to reach this goal. In the north-east, solar radiation is the highest in the world. Moreover, large geothermal energy resources are situated in this so-called Ring of Fire. Rivers allow us great opportunities to install small hydroelectric plants, while urban and agro-forest residues have not yet been used as an energy resource. Also, we have regions with stable wind masses favourable for high-capacity wind power plants. For the public service, it is estimated that the installed capacity for power generation from renewable resources, including hydroelectric plants, will account for around 8462 MW by 2027. Most of the additional capacity will be generated from hydroelectric and wind sources – 4656 MW and 3519 MW, respectively. Other renewable energy resources are set to account for 287 MW: 180 MW from geothermal resources; 57 MW from small hydroelectric plants; 36 MW from solar photovoltaic; and 14 MW from solar concentration sources.