Transforming Mexico
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TRANSFORMING MEXICO Vision and proposals for the future of the energy industry in our country. TRANSFORMING MEXICO Vision and proposals for the future of the energy industry in our country. AGENDA 2040 | TRANSFORMING MEXICO Contents 05 54 Preface Chapter 02 06 A NEW ENERGY MODEL Introduction to the 2040 Agenda FOR MEXICO 58 Constitutional Reform 14 Chapter 01 62 ORIGINS OF THE NEW Secondary legislation, MEXICAN ENERGY regulations and other regimes MODEL 64 16 Functional description: the practical Life before Energy Reform impact of the changes to the legal and regulatory framework 34 A thirty-year conversion: dilemmas 68 and paradoxes Initial results of the New Model 45 73 Genesis of the New Model Four defining characteristics of the New Model amexhi.org | 2 | 84 126 Chapter 03 Chapter 04 THE APEX OF NATIONAL KEYS TO THE NEW MEXICAN DEVELOPMENT ENERGY MODEL 86 129 Benefits of the new Mexican energy model Reflections on the future from the supply perspective 131 90 Mexico's challenges in 2040 Economic growth projected by the AIE in the “no Reform” scenario 137 Energy for 21st century Mexico 92 Economic growth projected 143 by the AIE in the “new policies” scenario Energy Security in an environment of openness and 105 competition Benefits of the new Mexican energy model from the demand perspective 144 The foundations of a sustainable Mexico 113 Impact on the country's competitiveness 156 Transparency and sustainability 119 Other competitiveness factors 120 Impact on Mexican productivity 158 Chapter 05 AGENDA 2040: VISION AND PROPOSALS FOR THE FUTURE 161 First principle: Consistency and predictability 164 Proposals for consolidating the New Mexican Energy Model 166 Ten proposals for enhancing the New Mexican Energy Model | 3 | | 4 | Preface Mexico City, Mexico, March 5, 2018 In every country, the performance of the energy sector repeatedly tests its national development model. Although there is always the temptation to see current symptoms in the present context, in reality, today's productive infrastructure depends on what was conceived, planned and begun to be developed decades before. In the energy sector, the current results are the product of the actions that were taken two decades ago. In Mexico, only 2 percent of the historical cumulative production comes from oil fields that entered production in the last 25 years. hat is the reason that this study by and the Mexican people. And so it should remain. the Mexican Association of Therefore, and according to available Hydrocarbon Companies (AMEXHI) International Energy Agency projections, we must is looking toward the horizon of maintain our course and pace by properly Mexico in the year 2040. The energy implementing Energy Reform. This will not only performance of the future and its allow us to meet the challenges inherited from impact on our economy the previous model, but also, and more Twill depend on the decisions we make today. By importantly, help us to add a billion dollars to our the year 2040, the production of current fields will economy by drop by 85 percent. Thus, in order to build our 2040. The goal is within our reach. It all depends future, we must begin to discover, develop and on the regulation and operation of the sector's take advantage of our energy potential as soon as adherence to four principles: consistency, possible. competition, transparency and a commitment to knowledge. The New Mexican Energy Model, being the group effort that it is, has the enormous advantage of Strict adherence to these principles is the best ensuring that the future does not depend solely on way to learn from our extraordinary national oil one centralized vision, which might be correct or history and design today's opportunities in a incorrect. On the contrary, it allows many ideas, global market with a profound commitment to technologies and perspectives to exist, compete transparency. It is, above all, the essential bridge and collaborate with each other—despite their to being able to make progress in sustainability differences— in building a common way forward and face the accelerated technological for all. transformation of the future. It is the idea of this common way forward that Mexico finally has the proper public policy inspires our Agenda 2040: Transforming Mexico. framework to make the global oil outlook work in This is an effort that arose out of the industry its favor over the next two decades and strengthen sector, but also incorporates the voices of experts its national productive infrastructure for much and authorities so as to reflect on our past and our longer than that. present, but most importantly identify the keys to building the best possible future for everyone. We are certain that, with the correct decisions, the Mexican energy sector of 2040 will reflect well on For a long time, the Mexican oil industry has been the national development model put in place by our a source of strength and pride for Mexico generation, from which all those generations to come will benefit. | 5 | AGENDA 2040 | TRANSFORMING MEXICO PHOTO: SHUTTERSTOCKPHOTO: | 6 | Introduction Modern economies derive a significant portion of their value from the production and consumption of hydrocarbons and their derivatives. In major producing countries, such as Mexico, they play an important role in revenue collection and investment. In top oil consuming countries, a group that Mexico is rapidly on its way to joining, they are the foundation of their productive activity. As such, Mexico generates value for its economy from the production of hydrocarbons, while at the same time obtaining essential inputs, from electricity and fuel, to petrochemicals and new materials, all essential to its competitiveness and economic prosperity. the world at least until the year 2040, which most of these studies look ahead to. hat is more, the influence of hydrocarbons will continue This is due to a profound technological transformation in the sector. Although other for a period of time that is sources of energy, particularly renewable sources still significant. Not only in of energy, have made great technological leaps in W Mexico, but around the recent years and are experiencing growth rates at globe. times in the double digits, technologies in the In fact, practically all energy hydrocarbons industry are also vigorous and projections—from private, government and profound. In addition, the renewable energies’ starting basis is still small, in comparison to that academic sources—agree that hydrocarbons will of hydrocarbons. remain the starting point for the bulk of economic activity around | 7 | INTRODUCTION | AGENDA 2040 This does not mean that the hydrocarbons sector driver of growth, later lagged behind the is dragging the sustainability of the planet down; economy and then once again overtook it. In on the contrary, hydrocarbons are helping to recent decades, the energy sector stalled and was successfully meet many current challenges. The on the verge of decline, while the economy rapid development of natural gas in recent years continued on its slow but consistent upward is one of the primary factors in the drop in climb. A significant gap began to widen between greenhouse gas emissions. Carbon capture them that made a consistent and sustained technologies are rapidly coming of age and new development model impossible. petrochemical processes, better fuels and the development of new materials are all helping to The New Mexican Energy Model set the goal of reduce vehicle emissions and fuel consumption, bringing the two back together and resolving an not only with regard to light vehicles, but vehicles acute structural crisis in our sector. Moreover, it as a whole. has set out to catapult the energy sector as a whole—including, above all, the dominant This is not surprising. Since they arose in the hydrocarbons sector—from its current position of latter half of the 19th century, hydrocarbons have lagging behind the national economy, back to a played a central role in all technological leadership position, restoring its historical role as revolutions since that time. Today, at the dawning a driver of our national economic growth. of the third decade of the 21st century, the hydrocarbons industry is noted as making some In recent years, the good news of the opening up of the most intensive use of computing power, of the Mexican energy sector, characterized by operating at great ocean depths via robots and record numbers of investment announcements, autonomous vehicles, and using advanced data the massive entry of new competitors and a management, automation, sensors and advanced strong commitment to knowledge, has made us manufacturing processes. This is the reason why forget that until recently, the news was always earlier predictions of its imminent decline have bad. turned around in recent years. Instead of declining, the opposite has occurred. Today, Just five years ago, we were still experiencing hydrocarbons are driving profound economic what were known as critical alerts, in other transformations throughout the world. words, the interruption of the natural gas supply that paralyzed industries and drove off other Despite their success, the reality is that in today's productive industries such as the automobile or world, we must develop all types of energy the electronics industries. In the last decade, we resources, due to the inescapable connection have lost more than a million barrels of between the success of an energy sector and that production, in addition to having to privatize of the economy it serves. Global economic growth reserves. Even in an environment of sound and its demands make whatever energy is growth in the demand for energy, it was not produced a valuable and indispensable input. It is possible to combine it with strategic investments, a symbiotic relationship, but this does not mean despite record high that the two move in tandem.