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Real Talk: The Impact of the Mexico Energy Ruling

Posted - August 22, 2014

Real Talk: The Impact of the Mexico Energy Ruling

Last week, Mexican President Enrique Peña Nieto signed new laws that opened Mexico’s closed energy sector to private firms.  Having been closed since 1938, these rulings will have important short- and long-term effects on the energy industry as well as a significant impact on transportation and logistics. Troy Ryley, Managing Director, Mexico at Transplace, and Alaster Love, Vice President of Oil and Gas for Transplace, sat down with us recently to discuss just what exactly the impact of this ruling will have.

(Photo: presidencia.gob.mx)

Q: What does this ruling mean to Mexico? What about globally?

Alaster: It’s an extremely emotional thing for the country – about 50% of their GDP is based on oil and the sale of oil-based products. However, their largest oil fields are shrinking in capacity, and they’re producing up to a third less than levels in previous years. Production of oil is what drives Mexico, and it’s a huge deal for them. This is a big change.

What the Mexican oil and gas industry hasn’t yet done is build a network of national-based providers.  Almost all of the drilling activity in the last 70 years has been done by European or US providers at day rates.  This change comes as offshore drilling is being opened up to joint ventures, and the Mexican people feel like foreigners are coming to take their resources again.

Troy: Mexico has always had a great deal of pride in its oil industry – this ruling is a big deal for the country. It has taken a lot of political agility to get this through their congress and convince the populous that it is good for their country. There are a lot of political ties between the oil and gas industry and Mexico.  My expectation is that Mexico, the ruling party, will be a beneficiary of this changed dynamic and there will be more money coming into the country.

Q: Are there other benefits that will be a ripple effect for Mexico and North America?

Alaster: Inclusive of Mexico and increased offshore and onshore production, the region stands to be the biggest producer in the world.  There are some tangible benefits, especially in northern Mexico where they pay exorbitant energy costs  – for example, Monterrey – as this might decrease energy expenses for manufacturers. This rolls over to the border as well – if there’s more manufacturing in Mexico, there’s more business at the border.

Troy:  This ruling absolutely brings more opportunity for cross-border trade. The amount of dollars available to the logistics community will increase, which will in turn create new opportunities. It’s definitely a hot topic that we’re helping educate our customers, prospects and partners on.

Q: What are you telling customers about this ruling?

Alaster: The biggest operators in this industry have long held representative offices in Mexico in anticipation of this ruling – and these companies will need to partner with a global company  for a door-to-door solution. An element of transparency is an important commodity and we’re here to help with that.

Troy: It’s an important “good neighbor” move that’s going to help us all. A strong Mexico is good for the U.S. This ruling may also add a greater sense of stability to Mexico that they haven’t had in recent years – it might turn out to be an excellent reason for both sides to work together and for the Mexican government to take additional helpful steps forward in the right direction.

Q: Finally, what does this ruling mean to Transplace? 

Alaster: It fits our model well as we have the necessary experience and background as much of the outcomes of the ruling will involve land transportation. We also have a very strong Mexico footprint  and are very well-positioned as a company to do dynamic things in this new vertical.

Because of the size of what will happen and the amount of materials required, the outcomes of this ruling play well with our biggest strengths – TMS and optimization. The onshore oil and gas activity requires an enormous amount of materials (e.g. sand and water) and when the operations get to that size they really need to look for efficiencies and optimization. Transplace is at the forefront of the industry and we have a tailor-made product for the oil and gas industry.

To learn how companies are taking advantage of opportunities in Mexico, check out our recent blog series on “Innovative Solutions for the Mexican Market” here and here, or visit https://www.transplace.com/international/Pages/mexico-services.aspx

What do you think of this new Mexico energy ruling? What do you think will be some of the short-term as well as long-term effects?