What You Should Know in Oil and Gas Today
The Big Story
Here we go again: Mexico President Andres Manuel Lopez Obrador (AMLO) is now making noises about reversing the opening that has allowed foreign oil companies to participate in Mexico’s oil and gas industry. The current policy was initiated by his predecessor in office, Enrique Pena Nieto, in 2014.
Prior to that time, international companies had been banned from exploring for oil and gas in Mexico since the 1930s, when the Mexican government accused companies like Shell and Texaco of underpaying royalties and taxes. Since then, PEMEX had operated as a government oil monopoly, with all the inefficiencies and allegations of corruption that invariably come with such an entity.
After dozens of international companies have invested many billions of dollars in his country over the past six years, AMLO now writes in a July 22 document just made public that a constitutional change should not be ruled out in order to reach the “higher goal” of his administration: recover Mexico’s control over its oil and electricity industries, including state owned Comision Federal de Electricidad, or CFE, as reported by Bloomberg.
“We must advance to the limit permitted by the current legal framework. However, if in order to apply the new rescue policy to Pemex and CFE we need to propose a new energy reform, we don’t rule out that possibility,” AMLO said.
This kind of instability in government is basically why Mexico can never become the energy powerhouse that its massive natural resources should allow it to become. Companies simply cannot trust that the policies adopted by one administration will continue past the next election, and allow them to recapture the multi-billion dollar investments often required to fully develop mineral resources.
Should AMLO ultimately follow through on his musings, the flight of capital and investment out of his country will be immediate and massive and would inevitably throw the Mexican economy into a deep recession. Even if he doesn’t, the mere threat represented by his writing should serve as a warning for international companies to exercise great caution in plans to make any further investments in Mexico for the time being.
Bad deal all the way around.
Meanwhile, in other news…
EPIC Midstream announced on Wednesday that it has placed its new natural gas processing facility near the Port of Corpus Christi into service. The plant, known as a fractionator, represents a $150 million capital investment and will process up to 110,000 barrels of natural gas liquids per day.
Also at the Port of Corpus Christi, Buckeye Partners LP loaded up its first shipment of crude oil from its new oil export loading terminal this week. The South Texas Gateway Terminal is a joint venture between Buckeye and Phillips 66. The crude oil being loaded is light sweet crude being produced in the Permian Basin.
A bid draw down in domestic crude inventories last week cause the oil price to spike on Wednesday. WTI rose all the way above $42 as the EIA reported a reduction in crude inventories of 7.4 billion barrels for the week ended July 31. The price for WTI is back above $42.50 as of this writing.
Energy Transfer received a positive ruling from the DC Circuit Court of Appeals on Wednesday. The court ruled that the company can continue operating its Dakota Access Pipeline, overturning a ruling from an Obama-appointed district judge who had ordered the pipeline shut down pending a fourth environmental impact study by the U.S. Army Corps of Engineers. The Appeals Court ruled that the judge in the case had not “made the findings necessary” to issue his injunction.
That’s all for today.