Future of Geopolitical Relations in the Gulf Coast
Written by Oscar Villa
Edited by Sriniketh Sukumar
According to the Mexican government and PEMEX (Mexico’s Main Oil producer company), there is “major potential of crude oil” with a resource prospective of about 29,500 million barrels of crude oil under deep waters of the Gulf of Mexico, covering a surface of approximately 575,000 Km2 (222,009 square miles), which represents 56% of Mexico’s total oil resources.
As regulations have recently changed, the deep water Gulf of Mexico (GOM) is an attractive place to invest for many companies outside of Mexico. There are good reasons why Exploration and Production (E&P) companies are attracted to the GOM. The region has a favorable geological and physcial environment suitable for exploration and well-developed infrastructure that is complemented by a stable fiscal regime, to name but a few. A typical reserve discovery makes positive returns in all five GOM play types. Experts suggest that, if found, sources in the basin could generate as much as USD 25 billion in net present value (NPV).
Upstream Oil and Gas Affected by Geopolitics
Although PEMEX (primarily a drilling company) is the world’s 8th largest oil producer, it still has a lack of technologies to enable them to explore and produce the oil in this region of Mexico. Therefore, according to the Mexican geological service, there was no scientific proof of the exact locations of these deposits in the Gulf of Mexico. In recent years, PEMEX has made several contracts with companies like NOBLE to work together to find, extract and produce oil in this area. E&P companies often invest outside their home country like in the case of the Gulf of Mexico. It is clear that the involvement of many companies in relation to exploration, development, and production of oil inside and outside the U.S is inevitable.
But what does this mean for us? Often, it means an increased availability of job opportunities in the area, which is favorable for young professionals looking for international experience. Beside the risk that the nature of the jobs entail, it is common sense that, as with any risk when traveling, there are additional risks involving working outside home, some places or regions may have unstable governments, safety risks for employees, risks of theft, and supply disruptions. The threat may even be political in nature. An abrupt change in fiscal and monetary policy, for example, could change tax rates and impact profitability. It is wise to analyze and keep up to date with the geopolitics of a country before going to work there and of course, to avoid regions with high geopolitical risk.
What is the relationship between Mexico and U.S.?
The earliest trades date back to The Oil Trade Between Mexico and the United States Under the 1942 Trade Agreement to the resent NAFTA agreement (1994 – present). NAFTA regulations and processes are significant in the oil and gas industry. How? To get an idea on how the law works on the extraction of hydrocarbons in Mexico’s soil, the only one allowed to do so is the State trough PEMEX. Mexico and the U.S. were not allowed to share oil production (according to the Mexican constitution), but it was until 2008 when the president Calderon, promoted an agreement among senators from both countries, to work in the extraction of hydrocarbons. Mexico is the No. 1 consumer of U.S. natural gas exports, according to the American Petroleum Institute, and the No. 4 destination for oil and gas exploration and production equipment.
More than 80 refineries process Canadian and Mexican oil; Texas Gulf refineries handle Mexican crude while Midwestern refineries handle Canadian. Gasoline produced by U.S. companies is being sold to Mexican consumers. So far, the relationships between both countries have been strong until recent years when newly elected President Donald Trump threatened to end the NAFTA treaty. As controversial as the president’s words can be, we could all agree that ending NAFTA would be “easier said than done”. By arguing about ending the trade, Donald Trump not only captured the world’s attention but also opened a door for renegotiation. The key to these new developments lie in the oil industry that has developed in Mexico made in recent years.
Current and future diplomacy with new elected presented Lopez Obrador
In the elections that took place this past July, Andres Manuel Lopez Obrador became the future president of Mexico. In his campaign, Lopez Obrador talked about improving Mexico’s energy sources as well as its technologies. Also as many have wondered, he emphasized the need for mutual agreement with Donald Trump, regarding the future diplomacy, trades, etc. It seems that politics play an important role when it comes to dealing with the oil and gas industry, mainly in the rules, regulations, taxes etc. As an interesting side note, this is the first time in 71 years that a candidate (socialist) wins the elections.
Sometime before the elections, PEMEX was having trouble financing much-needed improvements, in addition to U.S. shipments of oil having continually fallen over the past years. So PEMEX, which has controlled Mexico’s oil for 80 years, surprised the U.S. by inviting foreign investment into what had been a nationalized industry. On the other hand, Trump’s idea of disrupting trade gives investors Doubts and dollars dried up. In reality, the most damaged party that could arise if NAFTA is ended could potentially be the U.S. oil and gas industry. At this moment it is uncertain what Donald Trump will do about the oil trade between Mexico and U.S., but it is clear that a resolution must be given, one that can be beneficial to both countries.