Foreign companies not only find lucrative opportunities by conducting drilling and extracting operations, but can also benefit through the participation in the midstream Mexican energy sector segment
Those that are familiar with the oil and gas industry are aware that its basic structure is composed of three fundamental segments: upstream, midstream, downstream. Much of the conversation related to Mexican energy reform, and the opportunities that it will increasingly afford to foreign investors, has focused on the upstream third of the industry. This portion of the oil and gas industry is occupied by firms that primarily engage in the exploration for underground, or underwater, petroleum and/or natural gas fields through the conduct of drilling activities and the operation of wells used in the extraction of natural resources. Thus far the country’s federal government has conducted two Mexican oil block auctions. Although these opportunities are significant in size and scope lucrative potential business can also be conducted in the midstream Mexican energy sector segment.
The midstream Mexican energy sector is that part of the industry that involves the transportation of gas and/or oil, its storage, as well as its wholesale marketing. Some of the types of companies that operate in this area of the energy industry include:
- Logistics companies
- Technology companies
- Barge operators
- Railroad companies
- Pipeline construction and transport firms
- Trucking companies
- Terminal developers and operators
- Transloading firms
In just one of the above mentioned areas of the midstream Mexican energy sector segments opportunity for foreign investment and participation in the country’s energy market is sizable. Although the most economical way to transport oil and natural gas is via pipeline, currently only 10% of crude oil produced by Mexico’s state-owned Pemex is transported in this manner. The vast majority of the volume of Pemex production makes its ways to refineries in trucks. In order to illustrate current and future projected demand for pipeline inventory in the midstream Mexican energy sector it is significant to note that while Mexico contains 3,000 miles of oil pipeline, most of which is located in the southern region of the country, the United States has a network of conduit that is made up of 57,000 miles. In terms of natural gas, the Mexican pipeline network consists of 5,500 miles, while, in the US state of Texas alone, there are more than 58,000 miles.
In just this portion of the midstream Mexican energy sector, foreign investors are beginning to respond. According to a recent report by Ernst & Young entitled, “Mexico midstream: Opportunities for investors who move now,” major pipeline projects have been announced this year. According to EY, “In March 2015, US-based private equity firms BlackRock and First Reserve announced that they had acquired a 45% equity interest in two planned natural pipelines-called Los Ramones I and II.” EY went on to explain that these two pipelines “will link natural gas from Texas’ Eagle Ford shale fields to manufacturing facilities in Central Mexico.” The movement of this gas to areas in which industry is located will lower the cost of energy to those that have production Mexican production facilities.
At this point in time opportunities in Mexican energy downstream sector, which consist mostly of the refining of petroleum crude oil and the processing and purifying of raw natural gas are somewhat limited. This is the case because much of Mexican production of these products finds its way to US refineries, which are the most efficient in the world.
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