RIYADH: The altering global energy landscape has forced Mexico to change its course.

The Mexican push for investments and joint ventures in the sector has been diverted away from upstream crude oil and gas production to downstream, electricity generation, distribution and natural gas transportation, besides indeed the hydrocarbon sector. The focus in Mexico City has shifted from finding new sources to the development of infrastructure through public-private partnerships.

As Mexican output collapsed from 3.4 million bpd in 2004 to almost 2m bpd, President Enrique Peña Nieto in August 2014 announced lifting the 76-years old state control over the country’s vast oil and gas resources.

Many have been blaming lack of investments and mismanagement in the sector under state controlled Pemex monopoly for the woes of the Mexican energy sector.

And the steep decline in output was especially stunning as just across on the US side of the Gulf of Mexico intense exploration and crude production activity was noticeable where oil majors have been highly successful. Meanwhile Mexico’s side of the maritime border remained largely unexplored. The country was definitely lagging behind.

Mexico boasts of an estimated 60 billion barrels of untapped onshore and deep-water crude oil. The most promising fields to be explored, and most appealing to major US oil majors, were expected to be the deep waters of the Gulf of Mexico.

Bidders were then expected to vie for the estimated 27bn barrels of deep-water oil reserves in the Gulf. The areas up for grab reportedly included a broad mix — from deep waters to mature fields and non-conventional reserves such as shale gas.

The Ministry of Energy in Mexico had then estimated that $100bn in investment was needed over the next 10 years to develop Mexican shale resources, although some press reports mentioned the required investment figures to be closer to $250bn. Until then, Pemex has only invested approximately $250m in Mexican shale gas exploration and production.

The prolific Eagle Ford shale formation in Texas that extends south across the border into Mexico’s Burgos Basin was known to be accounting for two-thirds of Mexico’s shale gas resources. Mexican recoverable shale gas resources were estimated to be touching 600 trillion cubic feet mark — the sixth largest in the world.

Mexico was also estimated to possess 13bn barrels of recoverable shale oil resources ranking the eight largest in the world. With the development of Eagle Ford and the energy reform, many then believed that Mexico had the potential to replicate Texas’ success.

It was in this perspective that while signing the reform bill, President Peña Nieto had underlined then “with this reform we can extract deep-water oil and more effectively use our great shale deposit to obtain gas that allows us to generate electricity at a lower cost. The country will reduce its dependency on foreign supplies and will guarantee its energy security.”

Have all these expectations – raised when energy reforms were first floated — been fulfilled or are closer to it?

In the meantime, the overall energy market sentiments have undergone a complete transformation. Did oil majors get interested in tying themselves up in major ventures in Mexico, in an era when investment decisions are being deferred almost on a daily basis? This was a major question haunting mind, as one prepared to meet the Mexican President and his entourage in Riyadh last Sunday.

Lourdes Melgar, the Vice Minister of Hydrocarbons, did not mince words while answering the question: ‘There has been a zero interest in extra heavy crude.’

The emerging scenario apparently forced the government of President Nieto to change its course drastically.

This appears to be a different slate than what was originally presented to the world in August 2014. The changing global energy scenario has taken another major toll.

Published in Dawn, January 24th, 2016