Mexico looks for Canadian collaboration in energy shift

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Mexico is opening its state-controlled energy sector to foreign companies, but the question for Canadians is whether that means a boom opportunity or a new energy competitor.

Mexico's ambassador to Canada, Francisco Suarez Davila, insists that the prospects for teaming up will outweigh the rivalry, opening business for Canadian companies and revitalizing industry by making North America a low-cost energy environment.

And Mr. Suarez said that Mexico especially wants Canadian investors to buy in – because politically, the reforms will be more palatable if the wave of foreign investment isn't dominated by American oil companies.

Mexico's President, Enrique Pena Nieto, signed the reforms into law this week, paving the way for foreign companies to take part in oil and gas exploration and transmission, and electricity development.

It's a major change for a country where the 1938 decision to expropriate U.S. and British oil companies to create the state monopoly Petroleos Mexicanos (Pemex) was a nationalist milestone.

"It changes the trend in Mexico's history," Mr. Suarez said.

Mexican oil production had fallen from 3.5 million to 2.3 million barrels a day, and the country is importing half of its natural gas. Pemex couldn't finance moves into shale gas and deep water oil. Now foreign companies will be invited to make Mexican energy output boom. For Canada, it raises a question: Will this be an opportunity for trade, or an oil-and-gas competitor? Some wonder whether more Mexican oil means more competition in the U.S. market, and perhaps even weakens the political case for infrastructure like the proposed Keystone XL pipeline to connect the oilsands to Gulf Coast refineries.

"There's all this talk that we will be competing with Canada. No," Mr. Suarez said. "We will be complementing Canada and the United States." The U.S. won't be forced to rely on either country for energy, and instead, all three countries will be producing energy in a global market, and can use that to the continent's advantage, he said. "I think we are in a new mindset. The U.S. will require, in terms of oil and gas, neither Canada nor Mexico."

Mr. Suarez said there will be some elements of competition. But Mexico's projected increase in oil production – an additional one million barrels a day by 2025 – won't be enough to upset the North American market, he argues. Its natural gas will be absorbed by Mexican demand, especially as the country plans to change its electricity production to cheaper, cleaner, gas-fuelled plants.

Instead, Mexico's reforms will fuel a cheap-energy North America, with Canada, the U.S., and Mexico all ranking among the top seven nations in terms of potential natural gas reserves. Now Mexico will be able to produce the gas, and, with a reformed system, join continental talks on energy co-operation, and Mr. Suarez said, perhaps even building a better pipeline grid that might eventually link up along the Pacific coast from Mexico to Canada. Mexico's reforms will help make North America remain a bloc where natural gas can be purchased for $4 or $5 (U.S.) per million British thermal unit, while it sells for $15 elsewhere.

"The difference this makes for areas in which Canada, the United States, and Mexico are competing with the world, and that's in areas that are energy-intensive, like automobiles, airplanes and aerospace – nobody can compete with us at $4 for gas," he said.

That vision, of course, will come after a more immediate concern for Canadian companies: whether to jump in. Mr. Suarez notes there will be opportunities beyond bidding on oil and gas licences, in services, and in transmission.