Wednesday, August 14, 2013

Mexico to reform its oil and gas industry

The Mexican government has introduced a bill to amend its constitution allowing it to partially open the Mexican oil industry to private companies. If approved, it will technically not open the industry up but rather allow private companies to partner with the state oil monopoly, Petroleos Mexicanos, to find and produce oil and gas. This is a good start and one that will be difficult to achieve due to its limitations it sets for private companies as well as the nationalistic sentiment in Mexico.

The country is the third biggest supplier of crude oil to the US and it also has the world’s fourth largest reserves of shale gas. Petroleos Mexicanos is the sole producer of oil and gas in Mexico actually pays a fee to other companies to do everything from exploration to drilling wells. However, this business model has failed to attract major oil companies and as such oil production has fallen by one quarter over the past decade to 2.5 million barrels a day.

According to NAFTA data, for 2012, US imports by value for mineral fuels, oil and waxes declined 9.5% from 2011 to $39.9bn.  By mode of transport, vessel is the major mode of transport for this commodity. The Mexican ports that handle and transport most of the oil are located on the Gulf side – Cayo Arcas and Coatzacoalcos are the largest in terms of volume – combined, the two ports handled over 73.9m tonnes in 2012.  While there was a decline in value of vessel transport of mineral fuels, oil and waxes at 9.5% to $39.1bn; truck transport noted an increase between 2011 and 2012, up 16.3% to $516.5m.

This increase in truck transportation will bode well for US trucking companies such as Ryder and Schneider. Both companies offer specialized solutions for the oil and gas industry as well both have a strong presence in Mexico. Other trucking companies such as Swift and Con-Way could also possibly benefit.

While not perfect, the Mexican bill to reform its oil and gas industry is a beginning.  The possibilities are great for a country that is trying to shrug off its status of an “emerging country” and to become a true economic leader within the Latin American region. As it reforms its oil and gas industry, opportunities for logistics and transport providers will increase – such as expansion of port services (as well as the need to expand the ports themselves) and transportation services.