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Mexico Energy Reform Spawns Formal Binational Partnership On Border

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Mexico Energy Reform Spawns Formal Binational Partnership On Border

Mexico Energy Reform Spawns Formal Binational Partnership On Border

Mexico is scouting for help from American oil companies as it opens its energy sector to foreign participation for the first time since 1938.

At the same time, several U.S. companies are looking to Mexico to replace China as the industry’s principal supplier of the massive pipelines that send the oil to market.

That, in turn, has brought together two towns in two countries that want to harness geography and oil-industry experience for each other’s benefit.

It was once unthinkable, and to many in Mexico it still is, for Mexico to partner with foreign oil interests to rescue an under-performing energy sector. That was before Enrique Peña Nieto was elected president in 2012.

Peña came to Ojinaga 10 months ago, pointed across the Rio Grande and said, "We’ll create a manufacturing and transportation hub here to service the U.S. market."

Fast forward to today. Mexico has passed a bitterly contested constitutional amendment that Peña pushed, allowing foreign participation in the energy sector.

Mexico's state oil monopoly Petróleos Mexicanos, or PEMEX, will still handle conventional drilling on land and in shallow water.

Foreign companies are expected to take a lead in shale oil and gas drilling as well as deep-water extraction.

Enter David Turner, mayor of Odessa, Texas, a burgeoning place in the middle of the nation’s highest-producing oilfield. 

”This is the start of a relationship," Turner said.

He was referring to what he believes is a once-in-a-generation opportunity to work with Mexico, sell Mexico expertise and buy the metal pipes and fittings from Mexico rather than China.

We followed Turner in Mexico as he met technocrats and politicians like Ojinaga Mayor Miguel Carreón.

Unlike southern Mexico, oil is a new undertaking in the borderlands.

“They don’t know anything about the petroleum industry," Turner said. "You’re not going to find a better city than Odessa to partner with.”

Seated with Turner, Mayor Carreón named some oil and gas companies in the Permian Basin. "They have all the experience we don't have."

Turner was shopping with American expertise. Odessa’s been an oil town for 90 years. Companies there represent a “who’s-who” of American oil. But he was also doing some shopping of his own.

Turner said energy companies he speaks with regularly no longer want to rely on China for parts and equipment.

“Some of the pipe we’ve received from China is just not up to snuff," Turner said. "There’s 5000 feet, a piece of pipe breaks. And that could cost them $100,000 to recover that piece of pipe. What we see out of Mexico is quality products, quality pipe. They’re using all digital equipment."

"It just seems like a perfect match," said Carreón. Especially given the rising cost of transportation.

“How many miles is China from here?" he asked rhetorically. "We got 200-300 miles from Odessa? You need to cross the Pacific to to get to China. You only have to drive a couple miles to be in Odessa.” 

That’s just geography, but rising wages in China and transportation costs from Asia also work in Mexico’s favor.

Economist Tom Jacobs said Ojinaga’s border location, the recent start of major oil exploration projects nearby by PEMEX and Ojinaga's proximity to the Texas oilfields should bring some of the border jobs lost in the past two decades to China.

“It’s a win-win situation," Jacobs said. "I mean, we’ve got all this expertise. And with the constitution change, they’re (Mexico) going to have a more business-friendly government rather than frankly crony capitalists.”

Analysts estimate the entry of foreign oil expertise will boost Mexico's production by 75 percent within 25 years. They’d previously forecast a steady decline. The Ojinaga-Odessa partnership is an attempt by both to benefit in Mexico’s new regulatory environment.