Mexican Energy Market Deregulation: Opportunities and Challenges

Dissolution of the State-Owned monopolies – Petróleos Mexicanos (Pemex) and  Comisión Federal de Electricidad (CFE), entrance of private investors in both electric (generation and distribution) and petroleum sector (exploration and production, refining, pipeline infrastructure etc.), lifting of barriers for IPPs (Independent Power Plants) to supply electricity (which accounts for 40% of total electricity generation) to state owned CFE under PPAs (bilateral trades) almost after a decade, to make Mexico’s Energy Market more competitive, cost effective and environmentally sustainable – The Deregulated of Mexican Energy Market intended to attract domestic and foreign investment and to harness its substantial energy resources (solar, wind, geothermal power and deep-water oil) is all set to become the world’s 5th largest producer of Crude Oil by 2025.

Along with the end of monopoly of the state-owned entities which were plagued by corruption, inefficiency and heavy indebtedness, comes an end to the subsidized energy prices for Commercial and Industrial Customers. By liberalizing the energy market, Mexico government has set the fate of the energy prices to global markets. Here are some of the opportunities and challenges associated with the reform:

Opportunities:

  • Huge capital investment by the integrated oil companies through Production-Sharing Agreements, Profit-Sharing Contracts, E&P Licenses and Service Contracts which will increase the crude production to 3.7 bbls/day by 2040
  • Introduction of Wholesale Electricity Market through short-term transactions (hour-ahead, day-ahead and real-time electricity and ancillary services, the capacity market and CEC – Clean Energy Certificate Market, open transmission access) for power generators, qualified users, suppliers and non-supplying traders
  • Competitive market which will lower the electricity and fuel prices and improve BoP (balance of payments)
  • Development of energy infrastructure (refineries, pipelines, power generation plants, transmission lines etc.)
  • Increase in import of petroleum products (123 permits for the import of gasoline and 174 permits for the import of diesel granted by September, 2016) and shale gas, which is hovering at $4/mmbtu, building 7000 km of gas pipeline from US – to stabilize electricity and fuel prices
  • Increase in renewable source of energy (generating 35% of total energy by clean sources by 2024, rising to 50% by 2050)
  • 1% addition in the current GDP of 2.4% by 2018 and 2% by 2025
  • Increased number of jobs (to add 500,000 jobs by 2018 and 2 million by 2025)
  • Reduce corruption by inducing transparency and competition

Challenges:

  • Sudden increase in the electricity and fuel prices caused due to removal of subsidies and market liberalization
  • Protests from the political parties and trade unions
  • A conflict between multiple CFE pieces that were still backed and financed within the framework of a CFE monopoly raising a question as to “How independent would CFE be?”
  • Declining peso’s (Mexico currency) effect on achieving competitive energy prices

Among all these opportunities and challenges, there is an urgent need of CTRM Consultants which can help the domestic and foreign investors in making decisions which will help them in formulating strategic plans, proper market assessment, risk management and regulatory compliance using complex CTRM applications.

At Value Creed, with more than 80 years of cumulative experience in CTRM Application Assessment, Selection, Implementation, Development and providing Managed Services across various energy products – Crude Oil, Refined Products, Natural Gas and Power, we offer best CTRM Consultants who know your business. We are known in the industry for our deep knowledge of CTRM software and the unique ability to translate the power of CTRM software into solving real business problems.  This bridging of the worlds is possible through strong Project Management, efficient Business Processes and smart Custom Development – resulting in a trouble free, interconnected CTRM system that’s part of the solution – not a new problem to be solved!

Partner with us today to discover what can be accomplished when dedicated experts work on your business challenges!