Exclusive Q&A On Energy & Natural Resources With Edmond Grieger
Posted: 23rd December 2014 09:301. Have there been any recent regulatory changes or interesting developments?
On August 2014, Mexican Congress reached the approval of the reform minutes to the secondary legislation derived from the constitutional energy bill that came into force on December 21st, 2013, and on October 2014, the corresponding new Regulations in this regard entered into force.
This reform seeks to regulate the hydrocarbon sector, the electricity industry, geothermal energy, as well as the new legal regime for Petroleos Mexicanos (Pemex) and the state owned Electricity Utility Company (CFE), and gives rise to a new chapter in the country's energy sector. In this manner, the modern history in the sector transits from a nationalism with a fierce governmental control over the energy resources (same which was somewhat watered down over the time with the issuance of secondary legislation by several State administrations’) to a scheme being very close to a free market that will be discretionally controlled by the regulatory bodies of the State entitled to do so.
2. Can you talk us through the current energy and natural resources landscape in your jurisdiction?
With this year’s Mexican structural energy reform, Mexico opens its doors to private national and foreign investment in order to boost its oil, conventional and non-conventional gas resources, and supports the generation, marketing, transmission and distribution of electricity from various sources. The reforms will give rise to some disputes, mainly due to the ample discretionally that was given to the new regulatory agents of the State regarding the implementation of economic, tax, contractual environmental risk clauses, as well as in connection with the potential occupation of lands of vulnerable social sectors for the execution of new energy projects. We will see if the economic success and social wellbeing suggested and publicized by the responsible of the reform, at the end justify the wheeling in policy and legislation which the Mexican State has provided.
3. What markets currently provide the best opportunities?
In my opinion the most intriguing markets are those of developing countries, i.e. Mexico and Brazil, which offer attractive economic conditions and have structured legal frameworks to enable the successful development of a project. Developing countries usually offer attractive labour conditions for investors as well. Other important factors that need to be addressed and provided consist in stable social conditions, attractive tax schemes and incentives.
4. What challenges is the sector currently facing?
Against the tendency and preference that has been given to the development of renewable energy in more developed countries, the Mexican Congress has unfortunately temporarily set aside the discussion and approval of the appropriate reforms to specifically regulate and drive the energy from renewable sources. This leaves out, for the moment, the essence of the constitutional reform of last December 2013, which is to promote the sustainability and generation of energy through clean sources. However, this December we have seen some advance in this regard where the Mexican Congress has initially approved the Federal Energy Transition Act, only pending for the Senate approval, which provides in general terms that the federal and local governments shall provide the necessary incentives to continue with the development of clean energy. We are still waiting for the secondary legislation to provide more clarity and certainty on the specific incentives that will be granted for renewables and clean energy projects.
5. What should companies look for when deciding on a location to invest?
It is important to seek locations where the investors and companies engaging energy and natural resources projects will have the necessary economic and social conditions to carry out their projects. A large amount of these projects are engaged in rural communities where the social factor plays a big role and must be assessed adequately and in parallel to the economic, legal and environmental aspects.
6. What can new markets entering into shale gas production learn from established projects such as those in the United States?
Mexico has important reserve of shale gas that could be exploited, and will require a significant investment in geological studies, gas transport infrastructure, training of personnel, new technologies and the development of a regulatory regime that incentivizes investment as well as adequately protects the environment, workers and communities. Mexico shall adapt foreign experiences to local fracking activities in the country whenever possible.
It is very important for Mexico to take into consideration that large scale fracking, as it has been going on in the US for a time now, has important environmental, social and labor consequences that must be previously assessed to avoid any substantial negative impact. Mexico must be at all times conscious and aware that fracking must be assessed with a regional approach, since it is not the same to frack in the US, Great Brittan or in Mexico, as consequences differ substantially from one location to the other, due to local environmental and social conditions and other specific regional factors.
7. Are there any exciting technological developments on the horizon?
The push to extend fracking to arid regions is drawing attention to water-free techniques, such will be the case in Mexico. The foregoing, since the most important shale basin in Mexico is the Burgos Basin, extension of the Eagle Ford basin of the US, and it comprises several northern states which are known to be arid and scarce of the vital water resource.
Hydraulic fracturing uses large amounts of water injected into wells under high pressure to help free natural gas and oil from shale deposits. However, It’s possible to fracture gas-rich rock formations without using any water at all. Indeed, gas and oil companies have been using and exploring to use carbon dioxide and other similar substances, albeit on a limited basis. If this approach is going to be used on a large scale, it will require a major investment in infrastructure for getting carbon dioxide and/or other similar substance to fracking sites, and to assess the environmental impact of such techniques.
Edmond Grieger is partner at Von Wobeser y Sierra, S.C., head of the Energy, Environment and Natural Resources practices of the firm. He provides legal counsel on environmental and energy matters and disputes. He obtained his law degree from the Universidad Anáhuac and a Masters in Law (LL.M.) specialising in environmental and energy law at the Johannes Gutenberg Universität Mainz, Germany. He is member of the Mexican Bar Association, the Environment and Energy Committee of the ICC, the Environment and Energy Law Commissions of the IBA and the ABA. He can be contacted on +52 (55) 5258 1048 or by email: email@example.com