The $5.5 billion that Petróleos Mexicanos (Pemex), the state-owned energy giant, recently announced it will invest in midstream and downstream upgrades is just the beginning, CEO Emilio Lozoya Austin promises.
The 39-year-old former investment banker told the Financial Times that he intends to transform the reputation of the $123 billion company from inefficient, corrupt monopoly into nimble, efficient competitor. Lozoya believes he can save billions “by becoming more agile in the way we shorten the time it takes to plan, develop and extract hydrocarbons.”
Pemex plans to invest a total of $2.5 billion into the second phase of Los Ramones Pipeline to carry natural gas from the U.S. to central Mexico. Construction began earlier in September on the project, which by itself is expected to expand the country’s pipeline network by 40%. Operations are expected to begin in December 2015.
The investment package includes 42.8 billion to upgrade five refineries, enabling them to produce ultralow sulfur diesel that meets global fuel quality standards and will help fight the country’s chronic air pollution problem. Expectations are that the new clean fuel will constitute 60% of all diesel consumed in Mexico by mid-2015, and that all fuel will meet low-sulfur guidelines by 2017.
Pemex expects overall investment in 2014 to hit $27.7 billion.
Mexico’s energy reform legislation, signed into law in August, effectively ended Pemex’s monopoly. As a result, the U.S. Energy Information Administration dramatically readjusted its outlook for the country’s long-term petroleum production, increasing its forecast to 3.7 million barrels a day by 2040.
The reform legislation provides three new types of contracts for foreign investors:
- Profit-sharing: Companies receive a percentage of the profits from oil and natural gas development;
- Production-sharing: Companies will own title to a percentage of resource volumes as they are produced; and
- Licenses: Companies can be paid in the form of oil and natural gas extracted from each project.
While about 40% of Mexicans surveyed remain opposed to reform, enthused foreign operators are exploring partnership possibilities with Pemex. “We have been approached as a partner of choice,” Lozoya told the Financial Times, though he would disclose names of suitors.
Pemex’s mission for Los Ramones is to develop four pipelines with a combined length of about 620 miles and build two compressor stations with a capacity of over 80,000 horsepower. In Phase II, the pipeline will cross the states of Nuevo León, Tamaulipas, San Luis Potosí, Querétaro and Guanajuato. The goal is be able to bolster imports until its domestic gas production has grown sufficiently.
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