Depending on each other for energy independence
BEAVER CREEK — The good news is that the size of the U.S. economy could double by 2040, while energy costs and consumption are projected to remain fairly flat because of decreased use and more efficiency.
The better news is that, in North America anyway, we’re among friends — or at least business partners.
Increased North American energy production and Mexico’s petroleum paradigm shift took center stage of Saturday’s Vail Global Energy Forum.
Dr. Condoleezza Rice made the point in her opening remarks, that we’ll be better served if our energy sources are not inclined to use oil and gas as a weapon.
Mexico, Canada and the United States are razor close to producing enough energy that we no longer have to import any.
Many of the changes in Mexico are due to an economic reform led by the oil and gas industry, said Dr. Jesus Serrano Landeros, commissioner of Mexico’s Regulatory Energy Commission.
“It’s important to realize what a paradigm shift we’ve seen in Mexico,” said Duncan Wood, director of the Mexico Institute at the Woodrow Wilson International Center for Scholars.
The emerging leadership role stems from a uniform policy in the United States, Mexico and Canada, Wood said.
“This is a fundamental, critical change. It’s plays a crucial role in making North America energy independent,” Wood said.
How we got here
It’s a product of improved technology that opens huge new opportunities for energy development, increased efficiency in both harvesting energy and its consumption and a sea of change is on the way for how Mexico does its political business.
The Mexican government put forth a very disappointing proposal in August 2013, Wood said. Then the democratic process kicked and opponents from the center/right insisted that if the government wanted their votes, then they’d come up with something much better.
They did, and the Mexican legislature passed constitutional reform in Dec. 2013.
The first contracts were signed in Dec. 2014.
Where we are
Mexico is offering oil and gas drilling rights in 183 blocks covering 11,000 square miles. In the first round, 48 companies expressed interest and 25 have bid. The second round ended Friday, with six more companies bidding.
Mexico stands to be paid $12.6 billion per year.
In Mexico, oil and gas exports are surging, mostly to the U.S., as well as increased exports to other energy-dependent countries.
There is still as much oil and natural gas in Mexico as has been extracted in the history of that country’s energy industry, said Guillermo Garcia Alcocer, head of policies for exploration and extraction of hydrocarbons on Mexico’s Energy Ministry.
Why it’s working
With Mexico’s constitutional changes, PMEX — Mexico’s national oil company — can now take on private sector partners.
Financial transparency is built into it.
The money goes to Mexico’s national banks, he said, and all sorts of transparency and conflict of interest safeguards are built in.
“No one person makes a decision, but we are all aligned and can move quickly,” Alcocer said. “Mexico’s reforms went better than expected. This is a crucial time for energy in North America. Production of conventional and unconventional oil and natural gas supply is surging.”
Why it remains problematic
Off-shore drilling remains the path of least resistance in Mexico, Wood said.
Move that drilling on-shore and there are all sorts of human issues to deal with — organized crime and the drug cartels, rule of law — the list seems insurmountable, but it isn’t, Wood said.
“For the first time, international best practices are in place,” Wood said.
And some crime is less organized.
They’ll have to hire hundreds of inspectors, Duncan explained, but their salaries are budgeted to be only about $450 a month.
“If a police officer makes about $800 a month and is corrupt for that reason, what do you think is going to happen when an inspector is dealing with permitting an energy company and asks, ‘Do you want this permit or not?’” Duncan said.
Still, nothing succeeds like success, said Tom Petrie, Chairman, Petrie Partners LLC.
“If people in one area see success in another area, they might say, ‘I want to be part of that.’”