Peemex fears drinking straw effect as USA Oil majors drill deeper, faster with latest drill ship technology and have more capital

Officials at state oil monopoly Petroleos Mexicanos, or Pemex, can do little more than watch from the sidelines as oil majors break deep-drilling records on the U.S. side of the Gulf of Mexico.

The recent startup of the massive Perdido offshore drilling hub — a joint-venture of Royal Dutch Shell Plc (RDSB), Chevron Corp. (CVX), and BP Plc (BP) — even has some Mexicans fearful that oil from the Mexican side could seep over and get sucked up in what has been dubbed locally as “the drinking straw effect.”

Perdido is a floating complex 200 miles from the Texas coast that can be fed with oil and gas from nearby deposits. The first ones — Great White, Silvertip, and Tobago — are expected to reach average daily output of 100,000 or more barrels of oil equivalent.

As Pemex doesn’t have the technology to drill anywhere near the depth of the deep-water experts, and under Mexican law can’t share risk with them, government officials found themselves on the defensive as Perdido went on stream.

Energy Minister Georgina Kessel and Foreign Minister Patricia Espinosa said in a joint statement there was no clear information that cross-border deposits exist that would cause the “drinking straw effect.”

“The Foreign Ministry and Energy Ministry wish to stress that they are taking all the necessary measures to protect the sovereign rights of Mexico concerning natural resources in the Gulf of Mexico,” the statement said.

While a binational moratorium on drilling beyond the 200-mile territorial waters in the Gulf expired recently, the statement said, Mexico was seeking an extension.

Global oil giants have been learning the Gulf game drilling in U.S. blocks unaffected by the moratorium, and Pemex has just slipped further behind, said George Baker, head of the Houston-based consulting firm Energia.com.

Pemex “has no plan, no technology, no anything to show for the last 10 years,” he said.

At a conference last week on Mexico’s 2008 energy reforms, Pemex officials said they do have a Gulf strategy and have begun exploration.

Using contracted equipment, Pemex has drilled 10 deep-water exploratory wells since 2004, but so far hasn’t developed any.

Currently, Mexico has one deep-water platform in the Gulf, said Jose Antonio Escalera, deputy director for technical exploration at Pemex. In 2012, he said, Pemex expects to have four as it intensifies deep-water activity.

Pemex hit a crude production peak in 2004 at 3.4 million barrels a day before its biggest offshore complex, Cantarell, began a steady decline. The company expects to produce 2.5 million barrels a day this year.

In a January strategy report, Pemex identified nine areas in the Gulf for exploration, including the Mexican side of the area known as Perdido, which in Spanish means “lost.” Production from deep water deposits is a key part of Mexico’s strategic long-term energy plans.

Deep-water exploration and production requires drilling down to levels of a mile or more. The Perdido hub is moored at 8,000 feet. Traditionally, Pemex’s wells have measured in hundreds — and not thousands — of feet.

Pemex hopes to use new contracts to draw deep-water drillers into the Mexican side of the Gulf. Any company doing so can’t share any oil that’s found, nor be paid in oil, but could receive performance bonuses from Pemex.

Gulf experts speaking at the conference expressed caution on whether Pemex would generate much interest from deep-water experts such as Brazil’s Petrobras (PBR), which wanted to work with Pemex in the past but was turned down because of Mexican energy laws.

Oil exploration and production companies — like gamblers looking for the big win — usually want oil in return for risking billions of dollars on deep waters.

“Everywhere else, if I have success, I know I have barrels of oil to sell,” said Michelle Michot Foss, head of the Center For Energy Economics at the University of Texas–a conference sponsor. “You don’t get that in Mexico.”

Still, Foss said Pemex had a chance with its new contracts. “You have to get the bids out there transparently, and let people give it a crack to see if deals can be put together.”

President Felipe Calderon said recently the first incentive-based contracts would be for squeezing more oil and gas out of mature fields, and that a deep-water round of the contracts would come later.

Deepest ever Mexico's offshore oil well to be drilled in 2011

Mexico’s state oil company Pemex will delay its deepest-ever offshore well until next year due to concerns about deepwater drilling in the wake of the BP Plc oil spill, a top regulator said on Thursday.

“We are more concerned about best practices in deepwater,” Juan Carlos Zepeda, the head of Mexico’s recently formed National Hydrocarbons Commission (CNH), told reporters at an energy conference.

Zepeda said Pemex would drill its Maximino well sometime next year, but would not estimate when. It had been expected to start during the fourth quarter of this year.

A Pemex  official confirmed the delay of drilling the well, to be the deepest ever attempted by the company, citing a decision to try a less-challenging prospect first.

Pemex hopes its deepwater resources will someday reverse Mexico’s declining oil production. The deep waters of the Gulf of Mexico, which have emerged as a major oil production source for the United States, are largely unexplored in Mexican territory.

Mexico believes billions of barrels of oil lie in the deep waters of the Gulf, but exploration efforts are only beginning. Pemex has drilled fewer than 20 deepwater wells so far. It has made some modest natural gas and oil discoveries but has not yet turned up any major deepwater finds.

Zepeda said the delay would “give us the correct timing for finishing working with Pemex on their review of internal regulation and, in case it’s necessary on top of that, specific regulation for exploration and production.”

Company officials say they have no plans to slow future exploration despite safety concerns raised by the BP disaster.

NEW RIG

The hydrocarbons commission, set up under reforms to energy legislation enacted in 2008, has gradually been asserting its position as an independent regulatory body. Its power is limited to making recommendations to the energy ministry.

Zepeda said the commission was considering recommending enhanced safety rules for deepwater rigs similar to those the United States has been considering in the wake of the spill.

He said CNH was considering requiring a “double key” standard in which more than one person within Pemex would make final decisions on drilling procedures such as declaring that cementing on a well has been completed.

That would be a “core for an important transformation” in deepwater drilling, Zepeda said.

Mexico has been waiting for the delivery of a new drilling rig capable of operating in ultra-deep waters to test prospects like Maximino near the U.S. border. The rig is due to arrive in the fourth quarter of this year.

The rig, completed earlier this year in South Korea, is owned by local Mexican company Grupo R.

However instead of starting with Maximino, Pemex has decided to drill its Tulipau-1 prospect first to get familiar with the equipment, the Pemex official explained.

In the United States, the April 20 explosion on the Deepwater Horizon oil rig killed 11 workers and hurt the billion-dollar fishing and tourism industries across five states along the Gulf of Mexico.

The 9,600 foot (2,900 meter) Maximino well lies about 18.5 miles (30 km) from the U.S. border at sea.

New deep water Drilling rules announced by Mexico

Mexico’s upstream regulator, the National Hydrocarbons Commission, announced rules to govern deepwater drilling within the nation’s territorial waters.

The new regulations, published in Tuesday’s edition of El Diario Oficial — the Mexican equivalent of the Federal Register — are intended to prevent Macondo-like accidents and spills.

In a statement, the commission said the rules apply to all drilling in depths of 500 meters or more.

State-owned Pemex has to provide the commission with proof that it has the operational capacity and necessary infrastructure for deepwater drilling, whether directly or by means of contractors.

The state company will also be required to provide sufficient insurance and prepare procedures in order to cope with any emergency.

The new rules are being published just when Pemex is launching its most ambitious effort to drill in Mexican territorial deep waters, including in 2,800 meters some 18 miles south of the US border and within the Perdido Fold Belt.

The commission was formed as part of the energy reform approved by the Mexican Congress in late 2008. Before then, Pemex regulated itself in upstream matters.

Mexico a Solar Energy Gold Mine

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December 9, 2010 in Clean Energy, Solar Energy

A new report out from Mexico’s energy department, SENER, delves
deeply into the nation’s vast solar energy potential, which is well
above that of current solar energy leaders Germany and Spain.
The report, Solar Energy Sector has a ton of info on the solar
 potential of Mexico,
but here are a number of key findings:

Only 0.06% of Mexico (in land area) would be needed to
power the entire nation from solar energy
(according to 2005 usage rates).
“Mexico’s average solar resources for PV (5 kWh/m2/day) are 

more than 60% higher than the best solar in Germany
(5.4 GW of installed PV).”
“PV installed in many cities across Northern and Central Mexico has an 

‘energy payback time’ (EPBT) of less than two years.”
“Northern Mexico’s Direct Normal Insolation is equivalent to 

the best in the U.S. Southwest and in the North African deserts.”

Of course, Mexico isn’t living up to its solar potential yet.
“Mexico is seriously underdeveloped in terms of solar
energy technologies like solar photovoltaic (PV), concentrating
solar power (CSP) and passive solar thermal (i.e., hot water heating),
” CalFinder Solar reports. “For example, as of a 2007-08 report –
Mexico Solar Installations by Type – there are no concentrating
solar power plants in Mexico, and 80 percent of the solar PV
 installations are not grid-connected. Moreover, 78 percent
of the solar thermal installations are for heating swimming
pools rather than residential wash water.”

With Mexico City signing historic climate change legislation
last week and the “Renewable Energy Development and Financing
 for Energy Transition Law” (LAERFTE in Mexico) in place since
 November 2008, hopefully the country will be tapping into its
solar resources a lot more soon.

Image via Greentech Media

Mexico: Oil and Gas in Mexico: Recent Amendments in the Energy Sector

Basham, Ringe y Correa, S.C. 20th Sept 2010  Article by Juan Carlos Serra  Comment | View All Comments Legal Framework According to the Mexican Constitution (the "Constitution"), the Nation has direct ownership of subsoil, as well as the exclusive right to develop and use petroleum and gas. Therefore, private ownership of hydrocarbons is forbidden and ownership of reserves of petroleum and gas belongs to the Nation.As a result, the Nation may not grant oil exploration and user rights to private entities. Similarly, all hydrocarbons and basic petrochemicals are deemed to be strategic, exclusively reserved to the Nation. The oil industry includes among others: (1) the exploration, use, refining, transportation, storage, distribution, and first hand sale of oil and products obtained from its refining; (2) the exploration, use, production, and first hand sales of gas, as well as its transportation and storage, and (3) the production, transportation, storage, distribution, and first hand sales of products derived from oil and gas. Currently, Petroleos Mexicanos ("PEMEX"), a federal governmental agency, and its subsidiaries have the exclusive right to carry out all aspects of the oil and gas industry in Mexico, excluding the storage, transportation, distribution, and operation of natural gas pipelines, as well as the transportation, distribution, storage and sale of liquefied petroleum gas. PEMEX's current structure is composed of five divisions: (1) PEMEX-Exploration and Production, in charge of the exploration and production of oil and natural gas; (2) PEMEX-Refining, which refines crude oil into gasoline, diesel and liquefied petroleum gas; (3) PEMEX-Gas and Basic Petrochemicals, in charge of processing, transporting, distributing and marketing of natural and liquefied petroleum gas; (4) PEMEX-Petrochemical, is in charge of the production and marketing of basic petrochemicals; and (5) PEMEX-International Trade, which buys, sells and trades oil, refined products and petrochemicals. Private companies and individuals may hold one or more authorizations for the storage, supply and sale in gas stations of liquefied petroleum gas. Liquefied petroleum gas is exclusively produced by PEMEX. The distribution and sale may be carried out through a PEMEX branch, by individuals, private companies or through services agreements made with such persons, provided prior authorization is given by the Ministry of Economy. The petrochemical industry is divided into basic and secondary petrochemical industries. Ownership, production, and use of the basic petrochemical industry or products are exclusively reserved to the Nation, exclusively by PEMEX. The secondary petrochemical industry is not considered part of the strategic areas established as such in the Mexican Constitution and, therefore, the private sector, including foreign investors, may operate in this area. Recent Amendments to Laws in the Energy Sector After a review by Congress of several legislative proposals made by the President and several political parties to amend and enact new laws dealing with the energy sector, on November 28, 2008, energy reforms were published in the Federal Official Gazette and entered into force on November 29, 2008. The constant low level of oil extraction and production, as well as decreasing market prices, contributed to motivating Congress to approve the series of legislative proposals that will give PEMEX tools to be more efficient. The energy reforms are intended to modernize and improve the gas, oil, and bio-energy industries in Mexico, allowing greater participation by the private sector as contractors or service providers, and strengthening the organization and operation of PEMEX. The amendments and new laws may be summarized as follows: Amendments to Several Articles of the Law Regulating Article 27 of the Constitution with Respect to Petroleum. Amendments to Article 33 of the Federal Public Administration Organizational Law, granting additional authority to the Department of Energy to establish and manage energy policies. Passing of the National Hydrocarbons Commission Law which contemplates the creation of such a commission with the technical capacity to regulate and supervise the exploration and extraction of hydrocarbons. Amendments to Several Articles of the Law that Establishes the Energy Regulatory Commission, providing it with greater authority and technical, operational, managing, and decision-making independence. Passing of the Sustainable Use of Energy Law to seek to optimize the careful use of energy, from production to consumption. Finally, Passing the Mexican Petroleum Law which will regulate the organization and the operation of PEMEX. This Law will control the contractual involvement of PEMEX with private companies interested in taking part in the hydrocarbon sector. In addition, the Mexican Petroleum Law is supposed to strengthen the PEMEX Board of Directors by giving it full authority to conduct PEMEX's business and allowing the participation of independent directors and the hiring of private contractors through a more simple and expedited process, different from that applicable to all other government entities. One of the most relevant aspects of the reform is that PEMEX will be allowed to agree on variable compensations to be paid to private contractors that may apply mainly when the service is performed before schedule and when new technologies are given to PEMEX as a result of the rendering of the service. The new Board of Directors is composed of 15 members, six appointed by the President, five members appointed by the Oil Workers Union, and four professional members nominated by the President and approved by the Senate. To strengthen the operation of the Board of Directors, this new law also establishes mainly the following committees: (i) Evaluation of Development; (ii) Investments and Strategy; and (iii) Acquisitions, Leases, Works, and Services. Notwithstanding the foregoing and although the energy reforms give PEMEX more autonomy, new regulations, manuals and commissions will have to be created to complement the energy reforms. It will not be possible to truly know their reach and benefits for at least one to two years. The reforms were not what the business community expected and do not solve the problems and challenges Mexico is facing when it comes to the oil and gas sector. For instance, the proposal made by the President allowed private investors to take part in refining and in the transportation and warehousing of gas, oil refined products and basic petrochemicals, but this was not passed by Congress. Nevertheless, some in the industry are eagerly looking forward to knowing the details of the regulations and manuals to be issued by PEMEX, especially those dealing with the variable compensation schemes to be applied. Mexico has a strong challenge to make this scheme attractive to private contractors in order to bring into the country the resources and technology (especially when it comes to deep water drilling) that is required in order to develop the industry. This article was previously published by the Institute for Energy Law in The Energy Law Advisor

Study Identifies Mexico as Huge Solar Resource

Mexico is a solar energy opportunity without parallel, according to a reportfrom Greentech Media (via Rhone Resch’s Twitter post).

The report, Solar Energy Sector, was prepared by Mexico’s energy department, SENER, formally known as the Mexican Secretaría de Energía. Resch, in case you didn’t know, is president and CEO of the Solar Energy Industries Association, or SEIA, a powerful solar interest trade group. So the report is bound to be good.

More than good, it’s extensive, with a wealth of valuable charts and graphics – far too many to attempt to reproduce here. In essence, though, it notes that Mexico has been ranked at the top, globally, in terms of its solar photovoltaic (PV) andsolar thermal resources.

This is not all that surprising to those of us who have visited Mazatlan in the summer. For the rest, consider these facts:

• Mexico’s solar insolation values are about 5 kilowatt-hours per meter squared per day (kWh/mW/day), which compares favorably with southern California.
• Using just 0.06 percent of Mexico’s landmass (or 25 square kilometers in Chihuahua or the Sonoran Desert) would be enough to provide the entire country with electricity (at 2005 rates of usage).

Not only is Mexico’s average solar insolation 60 percent greater than in Germany, where solar is currently king, but – according to the International Energy Agency’s (IEA’s) EA Photovoltaic Power Systems Program 2008 Annual Report – Mexico is seriously underdeveloped in terms of solar energy technologies like solar photovoltaic (PV), concentrating solar power (CSP) and passive solar thermal (i.e., hot water heating).

For example, as of a 2007-08 report – Mexico Solar Installations by Type – there are no concentrating solar power plants in Mexico, and 80 percent of the solar PV installations are not grid-connected. Moreover, 78 percent of the solar thermal installations are forheating swimming pools rather than residential wash water.

Given that Baja is one of Mexico’s best solar insolation resources, and that the Aubanel Wind Project being installed there is exporting some (perhaps most) of its energy output to the U.S., it makes sense to consider solar projects “across the border” that benefit Mexico (in terms of power sales) and the U.S., in terms of clean, renewable energy.