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Professor Alejandro Diaz-Bautista, Energy Policy in Latin America, UCSD Presentation, January 2013
1. Energy policy in Latin America,
the cases of Mexico and Brazil.
Alejandro Díaz-Bautista, Ph.D.
Professor of Economics and Researcher
Email: adiazbau@gmail.com
http://www.facebook.com/adiazbau
Graduate School of International Relations & Pacific Studies.
University of California, San Diego (UCSD),
January 16, 2013.
2. Energy Economics
• Economists study the ways in which
societies allocate limited resources to
meet unlimited wants. Because most
energy production involves the use of
finite, non-renewable resources, such as
fossil fuels, energy economics is an
important economic specialty and field of
research in Latin America.
3. Energy and Economic Growth
While business and financial economists
pay significant attention to the impact of oil
and other energy prices on economic
activity, the mainstream theory of
economic growth pays little attention to the
role of energy or other natural resources in
promoting or enabling economic growth.
4.
5. Economic Growth and Energy
Consumption
• Energy is a vital ingredient to economic growth. This has
been recognized at least as long as economic statistics
have been compiled by government, and probably for
much longer than that. Perhaps the best example of the
fundamental role that energy plays in large, complex
national economies is found in the1973–1974 oil
embargo, when oil-producing nations of the Middle East
restricted supply and prices rose fourfold in a space of a
few months.
• The resulting chaos in the oil-consuming economies of
the industrialized West was widely considered to be a
direct result of the embargo. In the United States, GDP
fell in 1974, after two decades of steady growth. The
high cost and scarcity of oil was seen as the primary
cause.
22. Brazil
• Brazil has experienced rapidly expanding oil,
natural gas, and electricity consumption in
recent years.
• Brazil was the largest producer of liquid fuels in
South America in 2011.
• Natural gas constitutes only a small portion of
Brazil’s total energy consumption.
• Brazil has the third-largest electricity sector in
the Western Hemisphere, behind the United
States and Canada.
23. Brazil’s Energy Sector
• Brazil is the ninth largest energy consumer in the world
and the third largest in the Western Hemisphere, behind
the United States and Canada.
• Total primary energy consumption in Brazil has
increased by close to a third in the last decade, due to
sustained economic growth. In addition, Brazil has made
great strides in increasing its total energy production,
particularly oil and ethanol.
• Increasing domestic oil production has been a long-term
goal of the Brazilian government, and recent discoveries
of large offshore, pre-salt oil deposits could transform
Brazil into one of the largest oil producers in the world.
24. Energy Sector Industrial
Organization
• State-controlled Petrobras is the dominant player in Brazil’s oil
sector, holding important positions in up-, mid-, and downstream
activities. The company held a monopoly on oil-related activities in
the country until 1997, when the government opened the sector to
competition. The principal government agency charged with
monitoring the oil sector is the National Petroleum Agency (ANP),
which is responsible for issuing exploration and production licenses
and ensuring compliance with relevant regulations.
• Despite the opening of the sector to private actors in the late 1990s,
foreign-operated oil projects are not common in Brazil and represent
a small share of total oil production.
• Royal Dutch Shell was the first foreign operator of crude oil
production in the country, and it is now joined by Chevron and
Devon. Private competition in the sector is not just from foreign
companies: in September 2009, Brazilian oil company OGX
commenced an exploratory drilling program in the Campos Basin.
25.
26.
27. Brazil
• Brazil had 12.6 billion barrels of proven oil reserves in 2009,
second-largest in South America after Venezuela. The offshore
Campos and Santos Basins, located on the country’s southeast
coast, contain the vast majority of Brazil’s proven reserves. In 2008,
Brazil produced 2.4 million barrels per day (bbl/d) of oil, of which 76
percent was crude oil. Brazil’s oil production has risen steadily in
recent years, with the country’s oil production in 2008 about 150,000
bbl/d (6 percent) higher than 2007.
• Based on its September 2009 Short-Term Energy Outlook, EIA
forecasts Brazilian oil production to reach 2.61 million bbl/d in 2009
and 2.81 million bbl/d in 2010. Brazil’s oil consumption averaged
2.52 million bbl/d in 2008. As a result of this rising oil production and
flat consumption growth, Brazil will become a net oil exporter in
2009.
28.
29. Exploration and Production
• Petrobras controls almost all crude oil
production in Brazil. The largest oil-
production region of the country is Rio de
Janeiro state, which contains over 80
percent of Brazil’s total production.
• Most of Brazil’s crude oil production is
offshore in very deep water and consists
of mostly-heavy grades.
30.
31. Foreign Oil Operators
• Shell’s Bijupira-Salema project in the Campos Basin was
the first field in Brazil not operated by Petrobras. The
project came on-stream in 2003 and produces about
50,000 bbl/d.
• Shell launched its BC-10 project in July 2009, which has
a designed capacity of 100,000 bbl/d.
• Devon brought its Polvo project (50,000 bbl/d) online in
August 2007, representing the only upstream oil project
in Brazil without any Petrobras participation.
• Chevron commenced operations at the Frade project
(100,000 bbl/d) in July 2009. Finally, StatoilHydro is
developing the Peregrino field in Brazil, with expected
production capacity of 100,000 bbl/d.
32.
33. Subsalt Basin, Tupi field
• While some of the world's largest oil producers, including Mexico
and Iran, are struggling to remain exporters, Brazil is moving in the
opposite direction. A huge underwater oil field discovered late last
year has the potential to transform South America's largest country
into a sizable exporter and win it a seat at the table of the world's oil
cartel.
• The new oil, along with refining projects under way by Petrobras, the
national oil company, could eventually make Brazil a larger exporter
of gasoline as well, adding to supplies in the United States and
other countries where it is all but impossible to build new refineries.
• The subsalt basin that contains Tupi, the new deepwater field
estimated to hold the equivalent of five billion to eight billion barrels
of light crude oil, is creating a buzz among the world's largest oil
companies. They have struggled lately to find global-scale projects
worth investing in, even with oil touching $100 a barrel. Tupi is the
world's biggest oil find since a 12-billion-barrel field discovered in
2000 in Kazakhstan.
34.
35.
36.
37. Pre-Salt Resources: Tupi and
Beyond
•
A consortium of Petrobras, BG Group, and Petrogal discovered the Tupi
field in 2006, containing an estimated 5-8 billion barrels of recoverable
reserves (including both oil and natural gas). The reserves occur in a
subsalt zone that is an average of 18,000 feet below the ocean surface.
• The Tupi find was the largest oil discovery since the supergiant Kashagan
field in Kazakhstan. In addition, oil encountered in the subsalt zones
appears to be lighter and sweeter than most of Brazil’s existing production.
Following Tupi, numerous additional pre-salt discoveries were announced,
such as Carioca, Iara, and Guara.
• Preliminary estimates by industry analysts of the total extent of recoverable
oil and natural gas reserves in the entire subsalt reserve have exceeded 50
billion barrels of oil equivalent. In early 2009, Petrobras inaugurated an
extended test at the Tupi field, which will produce 14,000 bbl/d and help
develop techniques and expertise to overcome the challenges of pre-salt
production.
38.
39.
40.
41.
42. Proposed Regulatory Reforms
in Brazil 2009-2010
• The Brazilian government released the proposed regulatory
framework for the pre-salt reserves in August 2009. The framework
consists of four pieces of legislation.
• First, the rules would establish new production share agreements
(PSAs) to exploit the pre-salt reserves, in contrast with the
concession framework used for existing resources. Petrobras would
be the sole operator of each PSA and would hold a minimum 30
percent stake in the projects.
• Second, the rules would create a new agency, Petrosal, to
administer the state’s share of each PSA.
• Third, the government would establish a new development fund to
manage government revenues from the pre-salt development.
• The fourth piece of legislation would allow the government to
capitalize Petrobras by granting it pre-salt oil reserves that are
currently not otherwise licensed. These new rules would not affect
existing operators in Brazil.
43. Pipelines
• Transpetro, a wholly owned subsidiary of
Petrobras, operates Brazil’s crude oil transport
network. The system consists of 4,000 miles of
crude oil pipelines, coastal import terminals, and
inland storage facilities.
• The overall structure of the network enables the
movement of crude oil from coastal production
facilities and import terminals to inland refineries
and consumption centers.
44. Downstream
• According to OGJ, Brazil has 1.9 million bbl/d of crude oil refining capacity
spread amongst 13 refineries. Petrobras operates 11 facilities, the largest
being the 360,000-bbl/d Paulinia refinery in Sao Paulo. Petrobras also
controls a dominant stake in the retail products market. The refining
capacity in Brazil is relatively simple, meaning that the country must export
some of its heavy crude oil production and import light crude oil: according
to Petrobras, domestic crude constituted 78 percent of total domestic
refinery feedstock.
• Gasoline prices in Brazil are relatively high when compared to international
levels: according to the German Agency for Technical Cooperation (GTZ),
regular unleaded gasoline prices averaged $1.58 in 2007 and $1.26 per
liter in November 2008 ($5.04 per gallon), versus $2.21 per gallon in the
United States.
• According to its strategic plan, Petrobras plans to increase its Brazilian
refining capacity to 3.0 million bbl/d by 2020. In 2007, Petrobras began initial
site preparation for a new, 230,000-bbl/d refinery in Pernambuco, dubbed
Abreu e Lima. The project is a joint venture with state-owned Petroleos de
Venezuela S.A. (PdVSA), with each country providing half of the heavy-oil
feedstock for the plant. However, the two partners have yet to conclude a
final agreement. Petrobras estimated that the project would cost $12 billion.
45. Governments in Mexico, Venezuela, Argentina, and elsewhere are spending billions of dollars on fuel
subsidies to assure cheap fuel and keep a lid on social unrest. But as national budgets come under
increasing strain, these governments may have to consider alternatives.
Remember your gallons to liters conversion: 1 gallon = 3.785 liters
46. Ethanol
• Brazil is one of the largest producers of ethanol in the world and is
the largest exporter of the fuel. In 2008, Brazil produced 454,000
bbl/d of ethanol, up from 365,000 in 2007. All gasoline in Brazil
contains ethanol, with blending levels varying from 20-25 percent.
Over half of all cars in the country are of the flex-fuel variety,
meaning that they can run on 100 percent ethanol or an ethanol-
gasoline mixture. According to ANP, Brazil also produced about
20,000 bbl/d of biodiesel in 2008, and the agency has enacted a
three-percent blending requirement for domestic diesel sales.
• The importance of ethanol in Brazil’s domestic transportation fuels
market will only increase in the future. According to Petrobras,
ethanol accounts for more than 50 percent of current light vehicle
fuel demand, and the company expects this to increase to over 80
percent by 2020. Nearly 90 percent of all new cars sold in Brazil are
flex-fuel vehicles, which will slowly remove gasoline-only cars from
the fleet.
47.
48.
49. Ethanol Exports
• Because ethanol production continues to grow faster
than domestic demand, Brazil has sought to increase
ethanol exports. According to industry sources, Brazil’s
ethanol exports reached 86,000 bbl/d in 2008, with
13,000 bbl/d going to the United States.
• Brazil is the largest ethanol exporter in the world, holding
over 90 percent of the global export market. Besides the
United States, important export destinations include
Europe and Japan: According to industry reports, Brazil
exported 690 bbl/d of ethanol to Japan in 2008, but
exporters were expected to increase to 1,600 bbl/d in
2009.
50. Natural Gas
• Brazil had 12.9 trillion cubic feet (Tcf) of proven natural gas reserves in
2009. The Campos and Santos Basins hold the majority of reserves, but
there are also sizable reserves in the interior parts of the country. Despite
Brazil’s sizable natural gas reserves, natural gas production has grown
slowly in recent years, mainly due to a lack of domestic transportation
capacity and low domestic prices. In 2008, Brazil produced 446 billion cubic
feet (Bcf) of natural gas, mostly unchanged from 2007.
• Natural gas consumption is a small part of the country’s overall energy mix,
constituting only 7 percent of total energy consumption in 2006. However,
natural gas demand is rising: in 2008, Brazil consumed 835 Bcf of natural
gas, up from 701 Bcf in 2007.
• Oil prices have helped spur natural gas demand in Brazil: natural gas is
mostly used as a substitute for fuel oil in industrial and power-generating
applications, and domestic prices for natural gas are much lower than
international fuel oil prices. The introduction of natural gas imports has
increased available supplies, helping to facilitate this growth in domestic
consumption.
51.
52. Natural Gas Sector Industrial
Organization
•
Petrobras is the largest producer of natural gas in Brazil.
The company reportedly controls over 90 percent of
Brazil’s natural gas reserves. Other important
participants in the sector include Sulgas and Britain’s
BG. ANP has sought to attract international investment
to the sector, with recent exploration licensing rounds
including many gas-prone areas. Petrobras is also the
largest wholesale supplier of natural gas. The industrial
sector is the largest consumer of natural gas in Brazil,
representing about 80 percent of total domestic
consumption. However, the two fastest growing sectors
are thermal electricity generation and vehicular
compressed natural gas (CNG).
53. Pipelines
• Petrobras operates Brazil’s domestic natural gas transport system.
The network has over 4,000 miles of natural gas pipelines, mostly in
the southeast and northeast parts of the country. The network
consists of main systems in the southeast, northeast, and the state
of Espirito Santo; these systems are not currently interconnected,
which has hindered development of domestic production and
consumption. In June 2006, China’s Sinopec began construction on
the 730-mile Gasene pipeline linking the northeast and southeast
networks. According to media reports, construction of the third and
final stage of the Gasene system began in 2008, with completion of
the project expected by March 2010.
• A lack of natural gas transportation infrastructure has delayed
exploration and production in the interior regions of the country. In
particular, Amazonas state contains considerable reserves that
remain unexploited, especially the Urucu field, which contains
Brazil’s largest onshore natural gas reserves.
54. Natural Gas Imports
• Brazil imported about 400 Bcf of natural
gas in 2008. The country currently
receives imports from three sources:
Bolivia, Argentina, and liquefied natural
gas (LNG). Natural gas imports have
nearly doubled over the past five years,
and Petrobras forecasts that they will
continue to rise in the medium term. Most
of the additional import volumes will likely
come in the form of LNG.
55.
56. Liquefied Natural Gas (LNG)
• Brazil has two liquefied natural gas (LNG) regasification
terminals, both installed in the last two years: the Pecem
terminal in the northeast, and the Guanabara Bay
terminal in the southeast.
• Both facilities are floating regasification and storage units
(FRSU) provided by Golar LNG, with a combined
sendout capacity of 740 MMcf/d. The Pecem received its
first LNG cargo from Trinidad and Tobago in July 2008,
while the Guanabara Bay terminal came online in May
2009. According to ANP, Brazil received 1.3 Bcf of
natural gas in the form of LNG in 2008, all of which came
from Trinidad and Tobago.
58. Brazil’s Power Sector
• Brazil has the third-largest electricity sector in
the Western Hemisphere, behind the United
States and Canada.
• Brazil had 96.6 gigawatts of installed generating
capacity in 2007, with the single largest share
being hydroelectricity. In 2007, the country
generated 437 billion kilowatthours (Bkwh) of
electric power, while consuming 402 Bkwh.
• Hydropower provided 85 percent, with smaller
amounts coming from conventional thermal,
nuclear, and other renewable sources
59. ''Brazil has the most sustainable and cleanest energy matrix in the world,'' with 90 percent of its power generation based
on renewable sources, including hydroelectric power,
In the wake of the 1970s energy crisis, Brazil developed sugarcane alcohol as a gasoline substitute.
60. Conventional Thermal plants
• Conventional thermal generating sources
provided only a small part of Brazil’s electricity
supply, contributing about 8 percent in 2007.
According to Brazil’s Ministry of Energy and
Mines, the largest contributor to Brazil’s
conventional thermal power generation in 2007
was natural gas (45 percent), followed by
petroleum products (34 percent) and coal (17
percent). The share represented by natural gas
has grown sizably in recent years, standing at
only 7 percent in 1998.
61.
62. Brazil’s Nuclear Power
•
Brazil has two nuclear power plants, the 630-megawatt
(MW) Angra-1 and the 1,350-MW Angra-2. State-owned
Eletronuclear, a subsidiary of Eletrobras, operates both
plants. Construction of a third plant, the 1,350-MW
Angra-3, started in 1986, but was never finished. In
2008, construction began again, with completion slated
for 2014. According to industry sources, Eletronuclear
plans to build at least four new nuclear power plants (in
addition to Angra-3) by 2030, in order to meet expected
growth in Brazilian electricity demand.
65. Mexico’s Energy Policy
• Mexico is a major non-OPEC oil producer and among
the largest sources of U.S. oil imports.
• Mexico's oil production has declined in recent years, as
has its position as a net oil exporter to the United States.
• Mexico is a net importer of natural gas, mostly via
pipeline from the United States, and its natural gas
demand is rising due to greater use of the fuel for power
generation.
• Most of Mexico's electricity generation comes from
conventional thermal plants, the fuel source for which is
increasingly natural gas.
66. Mexico’s Energy Policy
• Mexico is one of the ten largest oil producers in the world, the third-
largest in the Western Hemisphere, and an important partner in the
U.S. energy trade. However, the amount of oil produced in Mexico
has steadily decreased since 2004 due to natural production
declines from Cantarell and other large offshore fields, though the
rate of their decline has stopped in recent months.
• The task of reversing production declines falls squarely on the
shoulders of Petroleós Mexicanos (PEMEX), the state-owned oil
company, due to constitutional limits on foreign involvement in the
exploration, production, and ownership of the nation's hydrocarbon
resources. Nonetheless, recently enacted and potential reforms
could liberalize the sector and promote greater foreign investment.
67. Mexico’s Energy Sector
• The oil sector is a crucial component of
Mexico’s economy: while its relative
importance to the general Mexican
economy has declined, the oil sector still
generates over 15 percent of the country’s
export earnings. More importantly, the
government relies upon earnings from the
oil industry (including taxes and direct
payments from Pemex) for about 40
percent of total government revenues.
Therefore, any decline in production at
Pemex has a direct effect upon the
country’s overall fiscal balance.
• Mexico is a major non-OPEC oil producer, with one
of the world's largest oil companies, Pemex.
68. Mexico’s Energy Consumption
• Mexico’s total energy consumption in 2006
consisted mostly of oil (55 percent), followed by
natural gas (32 percent). All other fuel types
contribute smaller amounts to Mexico’s overall
energy mix. Natural gas is increasingly replacing
oil as a feedstock in power generation. However,
Mexico is a net importer of natural gas, so higher
levels of natural gas consumption will likely
depend upon higher imports from either the
United States or via liquefied natural gas (LNG).
69.
70.
71.
72. Mexico’s Oil Production
• Mexico had 10.5 billion barrels of proven oil reserves as of January 1, 2009.
Most reserves consist of heavy crude oil varieties, with a specific gravity of
less than 25° API. The largest concentration of reserves occurs offshore in
the southern part of the country, especially in the Campeche Basin. There
are also sizable reserves in Mexico’s onshore basins in the northern parts of
the country.
• In 2008, Mexico was the seventh-largest producer of oil in the world. The
country produced an average of 3.19 million barrels per day (bbl/d) of total
oil liquids during 2008, down from 3.50 million bbl/d in 2007. Of Mexico’s oil
production, about 88 percent was crude oil and condensate, the rest
consisting of natural gas liquids (NGL) and refinery gain. Many analysts
believe that Mexican oil production has peaked, and that the country’s
production will continue to decline in the coming years.
73.
74.
75.
76.
77. Mexico’s Oil Sector Industrial
Organization
• The Mexican constitution provides that the Mexican nation owns all hydrocarbon
resources in the country. In 1938, Mexico nationalized its oil sector, creating Pemex
as the sole oil operator in the country. Pemex has four operating subsidiaries:
Exploration and Production, Gas and Basic Petrochemicals, Petrochemicals, and
Refining. Pemex is the largest company in Mexico and one of the largest oil and
natural gas companies in the world: in 2008, Pemex earned pre-tax profits of $43
billion, while it paid $50 billion to the government in the form of taxes and other
transfers.
• In 2008, Mexico enacted new legislation that sought to reform the country’s oil sector.
The goal of these reforms was to enable Pemex to curb the slide in oil production
experienced over the past several years. The measures included several
administrative changes, such as adding new seats to Pemex’s administrative board
for outside industry experts, creating a new advisory board designed to provide
independent coordination of long-term energy strategy, and establishing a new
hydrocarbons agency to regulate the sector.
• The reforms would also permit Pemex to create incentive-based service contracts
with private companies. Pemex received greater autonomy under the reforms,
including the ability to issue its own debt and establish more flexible mechanisms for
procurement and investment.
78. Energy debates and Reform in Mexico during 2008
2007 – – President Calderon requests a Pemex diagnose
2007 President Calderon requests a Pemex diagnose
Mar 2008
March 31st:stSenerpublishes the Diagnose of the national oil
March 31 : Senerpublishes the Diagnose of the national oil April 8th:th: The Executive Power delivers the Senate reform
April 8 The Executive Power delivers the Senate reform
industry
industry Apr proposals associated to the oil industry
proposals associated to the oil industry
April 9th:thThe Senate initiates the discussion to celebrate a a
April 9 : The Senate initiates the discussion to celebrate
May national debate with the topic of an energy reform
national debate with the topic of an energy reform
May 19th:thThe Executive Power sends a a proposal to the
May 19 : The Executive Power sends proposal to the May 13th th through July 22ndThe Senate’s discussion forums
May 13 through July 22nd: : The Senate’s discussion forums
Senate with a a new fiscal regime for Pemex for complex
Senate with new fiscal regime for Pemex for complex Jun take place
take place
oil fields
oil fields
June 23rd rd through 27:thThe National University (UNAM)
June 23 through 27th : The National University (UNAM) Jul Senate forums
organized forums on the energy reform
organized forums on the energy reform
July 23rd:rdThe PRI presents its proposal for an energy reform
July 23 : The PRI presents its proposal for an energy reform
August 13th:thThe PVEM presents its proposal on renewable
August 13 : The PVEM presents its proposal on renewable Aug
August 20th:thThe PRI modifies its Party Statements on energy
August 20 : The PRI modifies its Party Statements on energy
sources of energy
sources of energy
matters
matters
August 25 : The FAP presents its reform initiative
th th
August 25 : The FAP presents its reform initiative
Sep September 2ndndSenators from the PAN present an initiative for
September 2 : : Senators from the PAN present an initiative for
a a new law on sustainable use of energy
new law on sustainable use of energy
Oct
October 9th th through 23:rdThe Congress discusses the different
October 9 through 23rd : The Congress discusses the different Reform initiatives discussions at Congress
reform proposals
reform proposals
October 23rd rd through 28:thTHE CONGRESS APROVES THE LAW
October 23 through 28th : THE CONGRESS APROVES THE LAW
Nov AND REFORM INITIAVIVES
AND REFORM INITIAVIVES
79. New Energy Reform in Mexico
Oil pillar Transition pillar
CHALLENGES
CHALLENGES
To increase
To increase
execution capacities
execution capacities
and efficiency
and efficiency To achieve
To achieve
To increase
To increase To incorporate
To incorporate the Energy
the Energy
investment
investment State of the Art
State of the Art Transition
Transition
capacities
capacities technology
technology
Regulator strengthening
Regulator strengthening
and change in Fiscal
and change in Fiscal
Pemex Regime
Regime
strengthening
CHANGES
CHANGES
Sustainable energy
Sustainable energy
National content
National content
Management autonomy
Management autonomy promotion
promotion Transparency and
Transparency and
accountability
accountability
Renewables
Renewables
Flexible contracts
Flexible contracts
80. Exploration and Production
• Most of Mexico’s oil production occurs in the Gulf of Campeche, located off
the south-eastern coast of the country in the Gulf of Mexico. The two main
production centers in the area include Cantarell and Ku-Maloop-Zaap
(KMZ), with smaller volumes also coming from the fields off the coast of
Tabasco state. In 2008, the Gulf of Campeche accounted for 80 percent of
Mexico’s total crude oil production.
• Due to the concentration of Mexico’s oil production in the Gulf of Campeche,
any tropical storms or hurricanes passing through the area can disrupt oil
operations. In 2007, Hurricane Dean forced the evacuation of all offshore
platforms and shut-in all production for several days. In 2005, Hurricane
Emily also impacted Pemex’s operations in the Gulf.
• The Cantarell oil field is one of the largest oil fields in the world, but
production there has declined dramatically in the past several years. In
2008, Cantarell produced 1.0 million bbl/d of crude oil, down over 30 percent
from the 2007 level of 1.47 million bbl/d and down nearly 50 percent from
the peak production level of 2.12 million bbl/d in 2004. As production at the
field has declined, so has its relative importance to Mexico’s oil sector:
Cantarell contributed 36 percent of Mexico’s total crude oil production in
2008, versus 62 percent in 2004.
81.
82.
83. •
Chicontepec
Pemex sees the onshore Chicontepec project, located east of Mexico City,
as a potentially large source of future production growth. Chicontepec
contains 29 distinct fields spread over an area of 2,400 square miles. The
project currently produces about 30,000 bbl/d, but Pemex hopes to increase
production to 700,000 bbl/d by 2017. In early 2009, Pemex announced a
tender for the drilling of 170 development wells at Chicontepec, following
earlier tenders in 2008 for the drilling of 1,000 wells. According to Pemex,
Chicontepec contains an estimated 17.7 billion barrels of oil equivalent of
possible (3P) hydrocarbon reserves.
• According to industry reports, Chicontepec is very challenging technically.
Most of the crude oil at Chicontepec is very heavy in terms of API gravity.
The reservoir is also highly fractured and at low pressure, meaning that
recovery rates could be low and Pemex will need a large number of wells to
fully exploit the area. The region does not yet have much of the necessarily
infrastructure for large-scale oil development, such as pipelines, which must
be built amongst a dense, urban population.
The American Petroleum Institute gravity, or API gravity, is a measure of how
heavy or light a petroleum liquid is compared to water. If its API gravity is greater
than 10, it is lighter and floats on water; if less than 10, it is heavier and sinks. API
gravity is thus a measure of the relative density of a petroleum liquid and the
density of water, but it is used to compare the relative densities of petroleum
liquids.
84. Pipelines
• Pemex operates an extensive pipeline network
in Mexico that connects major production
centers with domestic refineries and export
terminals. This network consists of over 453
pipelines spanning 2,900 miles, with the largest
concentration occurring in the southern part of
the country. Mexico does not have any
international pipeline connections, with most
exports leaving the country via tanker from three
export terminals in the southern part of the
country: Cayo Arcas, Dos Bocas, and
Coatzacoalcos.
85. Oil Exports
• In 2008, Mexico exported 1.4 million bbl/d of
crude oil.
• The United States receives the vast majority of
Mexico’s crude oil exports, which mostly arrive
via tanker at the Gulf Coast; in 2008, the U.S.
imported 1.2 million bbl/d of crude oil from
Mexico, of which 97 percent went to the Gulf
Coast.
• The U.S. also imported about 100,000 bbl/d of
refined products from Mexico in 2008, mostly
residual fuel oil, naphtha, and gasoline blending
components.
86.
87. Refined Petroleum Imports
•
Despite its status as one of the world’s largest
crude oil exporters, Mexico is a net importer of
refined petroleum products.
• In 2008, Mexico imported 550,000 bbl/d of
refined petroleum products, while exporting
192,000 bbl/d. Gasoline represented over 60
percent of product imports.
• A resumption of brisk economic growth is one
cause for the increase in refined product
imports, along with fixed domestic product prices
that are below international market levels.
88. Gasoline Prices
• A surprisingly modest increase of the state-controlled and heavily subsidized price of
gasoline in Mexico was announced in January 2013 by Mexico's Finance Ministry,
despite considerable speculation that a major change might be in store.
• The new gasoline price, is 10.92 pesos per liter for regular gasoline, or about less than
$3.20 per US gallon. Similar increases were announced for premium grade and diesel.
• Mexican gasoline prices are about 10% less than those of the United States.
• The price structure between the two countries is very different. While the US has a free
market in gasoline retail, the Mexican state monopoly, Pemex, charges the same price
for the same grade of fuel throughout the country.
• No official alternatives to Pemex service stations are available to motorists, though a
black market in stolen fuel is thriving in some regions.
• Mexico currently imports 520,000 b/d of gasoline and diesel, a third more than it did
some five years ago and about half of the nation's total consumption.
• The price of gasoline is very heavily subsidized. Last year through November, gasoline
subsidies cost the government 206 billion pesos, just over $16 billion dollars.
• And most of the subsidies go not to the nation's poor but the rich. Some 10% of the
wealthiest motorists receive 30% of the subsidies.
92. Long-Term Developments in
Mexico’s Oil Trade
• The International Energy Outlook (IEO) 2009 forecasts that Mexico
could become a net oil importer by 2020, with net imports reaching
300,000 bbl/d in 2030. As one of the largest oil exporters to the
United States, this has important implications for future U.S. energy
supplies.
• U.S. crude oil imports could fall from 9.78 million in 2008 to 6.95
million bbl/d in 2030. As a result, the long-term fall in U.S. crude oil
imports could be larger than the fall in Mexico’s crude oil exports.
• From Mexico’s perspective, changing into a net oil importer would
have important repercussions upon the economy, due to the
dependence of the federal government on Pemex for a sizable
share of its revenues.
93. Downstream
•
Mexico’s oil consumption averaged 2.1 million bbl/d in 2008.
According to OGJ, Mexico has six refineries, all operated by Pemex,
with a total refining capacity of 1.5 million bbl/d. The largest facility in
the country is the 330,000-bbl/d Salina Cruz facility.
• Outside of Mexico, Pemex controls 50 percent of the 334,000-bbl/d
Deer Park refinery in Texas. In order to reduce its imports of refined
products, Pemex plans to build at least one additional refinery in
Mexico.
• The company announced in early 2009 that the cost of its plans to
build a new, 300,000-bbld refinery had increased to $10 billion.
• Pemex planned to start construction on the facility (Tula refinery),
which would have facilities to better process the country’s heavy
crude oil production, by the end of 2009. Construction hasn’t started
in early 2010.
94. Natural Gas
• Mexico had 11.8 trillion cubic feet (Tcf) of proven natural
gas reserves as of January 2009. According to Pemex,
the Southern Region of the country contains the largest
share of proven reserves. However, the Northern Region
will likely be the center of future reserves growth, as it
contains almost ten times as much probable and
possible natural gas reserves as the Southern Region. In
2007, Mexico produced 1.98 Tcf of natural gas, while
consuming 2.4 Tcf, with imports coming both via pipeline
from the United States and liquefied natural gas.
• Mexico’s natural gas consumption is rising primarily
due to great use in power generation.
95.
96. Pipelines and Storage
•
Pemex operates over 5,700 miles of natural gas
pipelines in Mexico. The company has twelve natural
gas processing centers, which produced 400,000 bbl/d
of natural gas liquids (NGLs) and 200,000 bbl/d of
liquefied petroleum gas (LPG) in 2007. Pemex also
operates most of the country’s natural gas distribution
network, which supplies processed natural gas to
consumption centers. The natural gas pipeline network
includes ten active import connections with the United
States. In 2008, Mexico imported 363.3 billion cubic feet
(Bcf) of natural gas from the United States, while it also
exported 42.9 Bcf.
97. Mexico’s Energy Regulatory
Commission (CRE)
• CRE (Comisión Reguladora de Energía) was created in 1994 as the
main regulatory agency of the electricity and gas sector in Mexico
and a consulting body to the Secretary of Energy.
• Its objective was to prepare the rules that would regulate the
relationship between the State’s utilities and the private investors in
the power sector.
• In 1995, the Congress passed a reform opening the downstream
activities in the natural gas sector. Then, CRE was also constituted
as the formal regulator of the energy sector and was given
operational and technical autonomy.
• CRE’s mandate is to promote the efficient development of the
activities it regulates. In doing so, CRE looks for a balance between
the interest of the consumers and that of the investors.
98. CRE’s regulation powers
PMX
Natural Gas Exploration Production Processing. Sales Transport Storage Distribution
Marketing
Surface transport. Bottle Distribution
PMX
LPG Production Processing Storage Pipeline
Sales Pipeline Distribution
Marketing
CFE & LFC
National
Transmission
Generation Transmission
Power Grid Distribution
Generation
Third Parties Transmission
Others
Imports / Exports
Imports
Open to private investment
Reserved to the State Regulated by CRE
99. Liquefied Natural Gas (LNG)
• There are two operating LNG terminals in Mexico and one other currently
under construction. In addition, there are other plants in various stages of
the planning process. According to industry reports, the largest suppliers of
LNG to Mexico in 2007 were Egypt, Nigeria, and Trinidad and Tobago.
• East Coast
Altamira, a joint venture of Royal Dutch Shell (50 percent), Total (25
percent), and Mitsui (25 percent) received its first LNG cargo in August
2006. The plant, located in Tamaulipas state, has an initial capacity of 500
million cubic feet per day (MMcf/d), with plans to increase the project to a
peak capacity of 1.3 Bcf/d. CFE has signed a 15-year contract to purchase
the entire output of the terminal.
• West Coast
The Costa Azul terminal near Ensenada, operated by Sempra, began
receiving LNG in 2008. The current send-out capacity of the plant is about 1
Bcf/d. Most of the natural gas will supply domestic customers in northwest
Mexico, but some natural gas could also be exported to California or
Arizona.
100.
101. LNG Terminal in Manzanillo
• Construction of a new LNG terminal at the port of
Manzanillo began in 2008. The plant will have an initial
capacity of 500 MMcf/d. A consortium of Mitsui, KOGAS,
and Samsung is building the plant. The plant would be
the second LNG terminal on the Pacific Coast.
• In May 2004, DKRW signed an agreement with the state
government of Sonora to build a 1.0-Bcf/d LNG receiving
terminal at Puerto Libertad, on the Gulf of California. El
Paso later joined the project as well, and the project will
reportedly connect with the El Paso natural gas pipeline
system in the United States. According to project
sponsors, the plant could begin operations by 2011.
103. Mexico’s Power Sector
• Mexico had 53.8 gigawatts of installed electricity generating capacity
in 2007. The country generated 243 billion kilowatthours (Bkwh) of
electric power in 2007. Conventional thermal generation represents
the overwhelming majority of Mexico’s electricity generation, though
the mix from these sources is gradually shifting from oil products to
natural gas. Mexico consumed 202 Bkwh of electric power in 2007.
• Power Sector Industrial Organization
State-owned Comision Federal de Electricidad (CFE) is the
dominant player in the generation sector, controlling about two-
thirds of installed generating capacity. CFE also holds a monopoly
on electricity transmission and distribution outside of Mexico City
and some other municipalities; within those areas, state-owned Luz
y Fuerza Centro (LFC) holds a monopoly on distribution activities.
The Comision Reguladora de Energia (CRE) has principle
regulatory oversight of the electricity sector.
• Most of Mexico’s electricity generation comes from
conventional thermal sources, mainly natural gas.
104.
105. Private Participation
• Changes to Mexican law in 1992 opened the generation
sector to private participation. Any company seeking to
establish private electricity generating capacity or begin
importing/exporting electric power must attain a permit
from CRE. As of the end of 2008, private generators held
about 22,700 megawatts (MW) of generating capacity,
mostly consisting of combined-cycle, gas-fired turbines
(CCGFT). CFE also operates Mexico’s national
transmission grid, which consists of 27,000 miles of high
voltage lines, 28,000 miles of medium voltage lines, and
370,000 miles of low voltage distribution lines.
106. Power Generation
• Hydroelectricity supplied about 10 percent
of Mexico’s electricity generation in 2007.
The largest plant in the country is the
2,400-MW Manuel Moreno Torres in
Chiapas. According to Sener, Mexico had
1,045 MW of installed, non-hydro
renewables, including 85 MW of wind and
960 MW of geothermal.
107. Mexico’s Nuclear Power
• Mexico has a single nuclear power
plant, the 1,400-MW Laguna Verde
nuclear reactor in Veracruz, operated
by CFE. In April 2007, CFE awarded a
contract to an international consortium
headed by Alstom to modernize the
plant and increase generating capacity
by 20 percent.
108. International Power Trade
• Mexico has an active electricity trade with the United
States. Mexico exported 1.3 Bkwh of electricity to the
United States in 2007, while importing 0.6 Bkwh.
Companies have built power plants near the U.S.-Mexico
border with the aim of exporting generation to the United
States.
• There are plans to connect Mexico with Guatemala and
Belize as part of the Sistema de Interconexion Electrica
para America Central (SIEPAC). The plan is part of a
larger effort, the Plan Puebla-Panama, to create an
integrated electric power market in Central America.
• The section of SIEPAC linking Mexico and Guatemala
came online in 2009.
112. Energy Reform in Mexico 2013
• Modernizing Mexico’s energy sector is a key priority of President
Enrique Peña Nieto’s administration..
• Throughout his election campaign, Peña Nieto said that energy
reform would be a key priority of his administration.
• The president said that Pemex has struggled to make the most of
Mexico’s crude oil reserves, and he has pledged to open up the
company to more private investment. To make it a worthwhile
investment, Pena Nieto believes a constitutional change is needed.
• Pena Nieto has held up Brazil’s state-owned oil firm Petrobras as a
model for Mexico to follow.
• Brazil has a legal framework which allowed it to create strategic
associations.
• Pena Nieto has mentioned that a partial listing of Pemex could be a
possibility in the future..
113. Mexico’s Energy Reform
• It’s vital for Mexico to reform its energy industry.
Pemex has watched production decline despite
Mexico’s huge deep-water reserves in the Gulf
of Mexico.
• The potential for a shale gas and oil boom
similar to those reshaping Canada and the U.S.
is real.
• Mexico appears to have access to areas with the
geological characteristics of large shale oil
reserves and is believed to be one of the world’s
five richest countries in shale gas.
115. Venezuela’s Energy Sector
• Venezuela is one of the world’s largest exporters of
crude oil and the largest in the Western Hemisphere. In
2007, the country was the seventh-largest net oil
exporter in the world. The oil sector is of central
importance to the Venezuelan economy: it accounts for
more than three-quarters of total Venezuelan export
revenues, about half of total government revenues, and
around one-third of total gross domestic product (GDP).
In addition, as a founding member of the Organization of
the Petroleum Exporting Countries (OPEC), Venezuela
is an important player in the global oil market.
The Organization of the Petroleum Exporting Countries (OPEC) is a cartel of twelve countries made up of Algeria, Angola,
Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. OPEC has
maintained its headquarters in Vienna since 1965, and hosts regular meetings among the oil ministers of its Member Countries.
Indonesia withdrew its membership in OPEC in 2008 after it became a net importer of oil, but stated it would likely return if it
became a net exporter in the world again.
116.
117. Venezuela’s Oil Sector Industrial
Organization
• Venezuela nationalized its oil industry in 1975-1976, creating
Petroleos de Venezuela S.A. (PdVSA), the country's state-run oil
and natural gas company. Along with being Venezuela's largest
employer, PdVSA accounts for about one-third of the country’s
GDP, 50 percent of the government’s revenue and 80 percent of
Venezuela’s exports earnings. In 2002, nearly half of PdVSA’s
employees walked off the job, in protest against the rule of President
Chavez. The strike severely impacted PdVSA, practically bringing
the company’s operations to a halt. PdVSA fired 18,000 workers
following the strike, draining the company of technical knowledge
and expertise. Industry analysts speculate that the strike did
permanent damage to PdVSA’s production capacity and remains
the contributing factor to continued declines in production in recent
years.
118.
119. Apertura Petrolera
• Foreign Operators
• In the 1990s, Venezuela opened its upstream oil sector to private
investment. This collection of policies, called apertura, facilitated the
creation of 32 operating service agreements (OSA) with 22 separate
foreign oil companies, including international oil majors and small
independents. Under these contracts, companies operated oil fields,
and PdVSA paid these companies a fee and purchased the
produced crude at a price pegged to market rates. PdVSA also
offered eight blocks under risk/profit sharing agreements (RPSA),
under which PdVSA had an option to purchase up to a 35 percent
equity stake in the project if the foreign operator discovered
commercial quantities of oil in the exploration phase. Finally,
Venezuela established four “strategic associations” that produce
extra-heavy crude, in which PdVSA held a financial interest.
120. Undo Apertura Initiatives
• In the last 10 years, Venezuela has moved to largely undo most of
the apertura initiatives, including mandating PdVSA majority
ownership of all oil projects and increasing tax and royalty rates on
new and existing projects. The efforts culminated with the 2007
transition of the four extra-heavy strategic associations to new
structures with PdVSA majority ownership.
• Of the six companies involved in the projects, two reduced their
holdings to allow space for the enlarged PdVSA share (Total and
Statoil), two maintained their previous stakes (Chevron, BP), and
two exited completely from the projects (ConocoPhillips and
ExxonMobil).
• Recent attempts by Venezuela to attract foreign investment to the oil
sector have focused on foreign national oil companies (NOCs),
including those from China, India, Iran, and Russia.
121.
122. Oil Fields in Venezuela
• The oil fields of Venezuela have been concentrated in
two parts. Naturally, industry complexes that are
dependent to oil and gas industries have been
distributed in these regions.
• The most important and principal oil fields of this country
are in the following regions; Lake Maracaibo, the beds of
Orinoco, Falcon, Apure-Barinas and Cariaco rivers.
• The principal natural gas reservoirs of Venezuela are
located at Paria Gulf and central part of Anzoategui.
123.
124. Strategic Associations and Joint
Ventures
• Strategic Associations
• Venezuela contains billions of barrels in extra-heavy crude oil and
bitumen deposits, most of which are situated in the Orinoco Belt in
central Venezuela. Estimates of the recoverable reserves from the
Orinoco Belt range from 100 to 270 billion barrels. Venezuela has
established four strategic associations to exploit these resources.
• Joint Ventures
• Along with private partners, PdVSA owns majority stakes in
numerous joint ventures (JVs). These companies manage projects
formally operated under the old operating service agreements
(OSAs). According to industry estimates, the fields operated by the
JVs produced around 400,000 bbl/d of oil in 2007. Many of these
fields are small and marginal, with steep decline rates that require
constant re-investment in order to maintain production levels.
125.
126. PdVSA International
• CITGO USA
• CITGO is a wholly-owned subsidiary of PdVSA that has some 14,000 branded retail outlets (both
directly owned and affiliates) in the United States. CITGO operates three product refineries (Lake
Charles, LA; Corpus Christi, TX; Lemont, IL), with a combined crude oil distillation capacity of
755,400 bbl/d. CITGO sources most of its crude oil under long-term contracts with PdVSA,
though the Lemont facility receives most of its feedstock from Canada.
• Caribbean/South America
• PdVSA holds a 50 percent equity interest in the Hovensa refinery, located in St. Croix, U.S. Virgin
Islands. Amerada Hess holds the other 50 percent interest in the refinery, which has a capacity of
495,000 bbl/d. The U.S. Virgin Islands imported around 300,000 bbl/d of crude oil from
Venezuela in 2007. In the Netherlands Antilles, PdVSA leases the 320,000-bbl/d Isla refinery on
the island of Curacao. Most of the products produced by these refineries are exported to the U.S.
or other regional markets.
• Europe
• PdVSA participates in two joint refining ventures in Europe, with the company holding equity
interest in 291,000 bbl/d of refining capacity in the region. PdVSA holds a 50 percent stake in AB
Nynas, a Swedish company that operates five refineries: Nynashamm (Sweden), Gothenburg
(Sweden), Antwerp (Belgium), Eastham (England), and Dundee (Scotland); PdVSA’s share of
this capacity is 50,500 bbl/d. PdVSA also holds a 50 percent stake in Ruhr Oel, in partnership
with BP. Ruhr Oel holds ownership stakes in five German refineries, Gelsenkirchen, Neustad,
Karlsruhe, and Schwedt, with PdVSA’s share of this capacity totaling 241,000 bbl/d.
127. Venezuela’s Gas Sector Industrial
Organization
•
In 1999, Venezuela adopted the Gas Hydrocarbons Law, which
opened all aspects of the natural gas sector to private investment.
The goals of the law included the development of natural gas
resources, especially non-associated fields; expansion of the
domestic natural gas transport network, creation of a general
distribution system; promotion of natural gas export projects; and
increased consumption of natural gas by the power and
petrochemical industries.
• The Gas Hydrocarbons Law also allowed private operators to own
100 percent of non-associated projects, a sharp contrast to the
ownership rules in the oil sector. Furthermore, royalty and income
tax rates on non-associated natural gas projects are much lower
than corresponding rates for oil projects. The law does give PdVSA
the right to purchase a 35 percent stake in any project that moves
into commercial status.
128. Liquefied Natural Gas (LNG)
•
In September 2008, Venezuela signed agreements to create three
joint venture companies to pursue LNG projects along the northern
coast of the country. Each project will consist of a separate
liquefaction train at the Gran Mariscal de Ayacucho (Cigma) natural
gas complex in Guiria.
• The first project would source gas from the Plataforma Deltana
project, with exports estimated at 4.7 million tons per year (t/y).
• The second train would use natural gas from the Mariscal Sucre
project, also exporting an estimated 4.7 million t/y.
• The third train would use natural gas from the Blanquilla-Tortuga
fields. According to PdVSA, the total investment in the three projects
could approach $20 billion, with first exports by 2013.
137. The effects of high oil prices
Higher oil prices encourages investments in alternative
energy sources.
Energy Demand growth in big emerging nations like China
and India and OPEC leveraging are likely to keep oil
prices high enough to keep alternative energy resources
profitable.
The low price of natural gas. Cheap gas encourages
utilities to build more gas-fired power plants, which are
cleaner than coal-powered ones.
138.
139.
140.
141.
142. Renewable energy sources - including biomass, solar, wind, geothermal and hydropower - not only use indigenous resources but also
have the potential to provide energy services with zero or almost zero emissions of both air pollutants and greenhouse gases.
143. The outlook for renewable energy generation is promising,
with increased deployment expected
By 2030, renewable energy is expected to account for 22% of electricity
generation in emerging markets, with the biggest contributions from hydro and
wind
Projected Generation Costs of Renewable Energy Technologies
US$ / MWh
2007
Source: International Energy Agency, World Energy Outlook 2008
Growth in renewable energy investments is expected to be driven by declining
investment costs, government support and response to climate change concerns
144. Conclusions
• Demand for oil and gas resources will grow in Latin America.
However, most Latin American countries are without sufficient
capital to finance the development of indigenous oil and gas
reserves.
• From a purely economic perspective, subsidies are a regressive
approach to the social and economic inequalities plaguing countries
in the region. Countless studies have analyzed the winners and
losers when a government subsidizes fuel prices. They have
consistently found that the big winners are the affluent vehicle
owners and energy-intensive consumers, instead of the intended
target group, the poor.
• Latin America has the opportunity to fight poverty by using local
natural resources, the possibility of overcoming dependence on
fossil fuels by increasing the use of renewable sources of energy.
145. Energy policy in Latin America,
the cases of Mexico and Brazil.
Alejandro Díaz-Bautista, Ph.D.
Professor of Economics and Researcher
Email: adiazbau@gmail.com
http://www.facebook.com/adiazbau
Graduate School of International Relations & Pacific Studies.
University of California, San Diego (UCSD),
January 16, 2013.
146. References
• EIA (2011), “Brazil, Country Analysis Briefs”, Energy Information
Administration, Department of Energy.
• http://www.eia.doe.gov/emeu/cabs/Brazil/pdf.pdf
• EIA (2011), “Mexico, Country Analysis Briefs”, Energy Information
Administration, Department of Energy.
• http://www.eia.doe.gov/emeu/cabs/Mexico/pdf.pdf
• Díaz-Bautista, Alejandro (2005), Experiencias Internacionales en la
Desregulación Eléctrica y el Sector Eléctrico en México. El Colegio
de la Frontera Norte, México y Editorial Plaza y Valdes.