Mexico midstream to benefit from energy sector overhaul

Latin America's second-largest economy is looking to attract foreign investors to help reinvigorate its oil and gas industry.

Mexico has unveiled plans for an overhaul of its energy sector which allow foreign investors to bid for prospective oil reserves and related midstream and downstream activities in the country, according to a statement from the country’s energy ministry.

Mexico, which nationalised its oil and gas industry in 1938, has long banned foreign investors from getting involved in the sector. The energy reform, announced last week, is seen as central to President Enrique Pena Nieto's broad-based effort to enlist foreign capital and expertise to help bolster the country’s declining production.

The changes were announced under the Hydrocarbons Law and the Hydrocarbons Revenues Law, which became effective on 12 August. Together, these laws establish a new legal framework for all hydrocarbon-related activities in Mexico. They are also part of a set of new laws to implement the constitutional energy reform that became effective on 21 December last year, according to law firm Mayer Brown.

Under the overhaul, most of the country’s existing production fields will be kept under control of the state-owned oil monopoly, Petróleos Mexicanos (Pemex), but private investors will be invited to bid for a large portion of prospective reserves.

Pemex is to retain 100 percent of its producing areas, 83 percent of Mexico’s proven and probable reserves and 21 percent of the country’s prospective reserves, according to the statement. Pemex had originally requested to retain 31 percent of Mexico's prospective reserves.

In addition, the law establishes a “permit” regime for midstream and downstream activities to be regulated by the Ministry of Energy (SENER) and the Energy Regulatory Commission, Mayer Brown said in a report.

The overhaul also guarantees open access and competition for midstream activities, the document argued.

The Hydrocarbons Law establishes that all permit holders providing transportation, distribution or storage services ought to provide open and non-discriminatory access to their facilities, subject to available capacity and pursuant to rules to be issued by the Energy Regulatory Commission.

The Energy Regulatory Commission, with the opinion of the Federal Economic Competition Commission, may establish regulations to promote a competitive energy sector that may include the strict legal separation among activities or the administrative, operational or accounting separation of certain activities, the report added.

Activities that will need permits from SENER include: treatment and refining of petroleum, processing natural gas, and import and export of crude oil, natural gas, and petroleum products.

Activities that will require a permit from the Energy Regulatory Commission include: transportation, storage, distribution, compression, liquefaction, decompression, regasification, marketing and retail sale of crude oil, natural gas, petroleum products and petrochemicals, integrated pipeline transportation and storage systems.