© Crown copyright 2014
This publication is licensed under the terms of the Open Government Licence v3.0 except where otherwise stated. To view this licence, visit nationalarchives.gov.uk/doc/open-government-licence/version/3 or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: email@example.com.
Where we have identified any third party copyright information you will need to obtain permission from the copyright holders concerned.
This publication is available at https://www.gov.uk/government/publications/mexico-energy-reforms-create-opportunities-for-uk-business-august-2014/mexico-energy-reforms-create-opportunities-for-uk-business-august-2014
This publication was archived on 4 July 2016
This article is no longer current. Please refer to Overseas Business Risk – Mexico
Mexico’s historic energy reform opens up some of the most significant reserves of untapped hydrocarbons to private investment for the first time. Investment opportunities could be as much as $30bn pa. UK majors expect to win large concessions in first open round of exploration and extraction contracts. UK suppliers also well-placed to win significant amounts of work, especially around deepwater projects.
Following President Peña Nieto’s recent approval of the energy reform legislation , the Mexican Government announced the results of ‘Round Zero’ - the first tranche of new oil and gas field development contracts, on 14 August. This initial round was limited in scope to the assignment of exploration blocks to State-owned operator PEMEX, but we expect there to be supply chain opportunities for international oil companies arising from these allocations.
At the same time as announcing the results of Round Zero, the Government presented the forward look of the upcoming ‘Round One’ – the first fully-open round of new field exploration and development contracts since the sector was nationalised in 1938. Initial figures suggest 109 new blocks in 69 fields, totalling 28,000km² will be included in this open competition. A period of consultation running from November to January 2015 will seek to capture industry views on the nature of the blocks as well as on contractual and financial terms, with the formal call for bids in February 2015 and results announced in steps from May to September 2015.
Energy sector boom ahead
This opening-up of the Mexican oil & gas industry is significant. Mexico is the world’s 9th largest oil producer, 18th largest gas producer, and has the world’s 4th largest shale gas reserves [IEA figures]. The Mexican Treasury has estimated that levels of investment in the sector could double to $60bn a year as a result of the reforms. Opportunities for UK companies in the first open round will be enormous.
Under the reform package, local content levels for contracts have been set at 25% rising to 35% during the lifecycle of a project. This compares favourably with other, more protective, countries And there are opportunities for smaller international suppliers to partner with local companies on new contracts, with a number of local prime contractors keen to partner with international firms.
What this means for UK plc
For UK providers the bulk of the new opportunities are likely to be in the upstream sector through the engineering, construction and operation of offshore assets and facilities; but there will be increased demand throughout the oil and gas supply chain and in mid and downstream energy operations, including (but not limited to) health and safety equipment, software products, pipeline integrity management, education & training, and refining.
The Reforms will have implications for how we deliver our already successful Mexico oil and gas HVO programme, which we have planned for. Over the last two years the HVO has supported over £313m of business wins, assisting a number of leading UK suppliers.
At the same time, we will continue to work closely with UK energy trade bodies such as the Energy Industries Council, NOF Energy, Subsea UK and Oil & Gas UK - all of whom are showing increased interest in the Mexican market – and work to highlight opportunities in the sector amongst the UK supply chain.
And we will also continue to pursue opportunities for UK education providers to supply high quality training to the oil and gas sector. The British Council recently signed an MoU with PEMEX to collaborate on English Language training and other education link ups; and one UK supplier is separately taking forward a partnership with Northumbria University to deliver courses on pipeline integrity to its Mexican employees. We expect to see other UK education providers engaging in similar ways as the market opens up to more players.
The reforms provide outstanding opportunities for British business. While there is still some time to go until the first contracts are awarded under Rounds Zero and One, reactions from industry, including the UK players, have been very positive. The focus now is to actively engage with UK industry to highlight the potential opportunities, and ensure maximum benefit for UK plc.
The purpose of the FCO Country Update(s) for Business (”the Report”) prepared by UK Trade & Investment (UKTI) is to provide information and related comment to help recipients form their own judgments about making business decisions as to whether to invest or operate in a particular country. The Report’s contents were believed (at the time that the Report was prepared) to be reliable, but no representations or warranties, express or implied, are made or given by UKTI or its parent Departments (the Foreign and Commonwealth Office (FCO) and the Department for Business, Innovation and Skills (BIS)) as to the accuracy of the Report, its completeness or its suitability for any purpose. In particular, none of the Report’s contents should be construed as advice or solicitation to purchase or sell securities, commodities or any other form of financial instrument. No liability is accepted by UKTI, the FCO or BIS for any loss or damage (whether consequential or otherwise) which may arise out of or in connection with the Report.