President Barack Obama will tell Mexican President Enrique Peña Nieto that the U.S. is working on implementing a pact between the U.S. and Mexico that would open up nearly 1.5 million acres in the Gulf of Mexico to energy exploration, according to informed sources at the State Department.
Obama, who travels to Mexico Thursday, for a series of meetings, said at a news conference this week that “a lot of the focus is going to be on economics” as he meets with Peña. Discussing ways to handle security issues in Mexico, especially the drug cartels, will also be on the agenda.
The Transboundary Hydrocarbons Agreement, which was reached in early 2012, could allow both countries to manage any reservoir that overlaps the border as a “unit,” dividing up production.
Two months after the pact was signed by then Secretary of State Hillary Clinton, the Mexican government ratified it in April 2012. The U.S. has not yet finalized its legislation as it awaits congressional approval of the agreement.
“The U.S.-Mexico Transboundary Hydrocarbons Agreement is important to expanding America’s offshore energy production, “ said Rep. Doc Hastings, R-Wash., the chairman of the House Natural Resources Committee. “We know what the potential consequences are if America is blocked from developing its shared natural energy resources along the shared border of U.S. and Mexico.”
The House committee had a hearing on its version of the legislation, which is currently in the mark-up phase, and the Senate introduced their bill last week. Energy analyst Joseph Dukert, a longtime specialist in North American energy interdependence, said it was “insulting” for the U.S. not to have moved promptly on the agreement, which he called a “win-win deal”.
Oil production makes up 35 to 40 percent of the Mexican budget. The country’s state oil monopoly — Petroleos Mexicanos, commonly known as PEMEX — is dropping in crude oil production. This February, crude oil exports from Mexico to the U.S., PEMEX’s largest customer, were only 869 thousand barrels per day (bpd) compared to last year when it was more than a million barrels a day.
Pemex would benefit tremendously from opening up more oil development in the Gulf and working with the U.S. on oil production and safe exploration and drilling standards. Pemex’s biggest oil field in the Gulf of Mexico, Cantarell, has seen production slide nearly 74 percent since 2006.
“Mexico reached out this slight opening out with PEMEX and we just ignored it,” Dukert said.
Besides North Korea, Dukert said Mexico is the only major country that has resisted finding a way to let foreign companies participate in some form of production sharing for oil and gas. If the administration agrees to open the maritime boundary in the Gulf, it may help the U.S. work more closely with its neighbor and continue counting on Mexico as a reliable energy trading partner of oil imports.
Canada remains the largest crude oil importer to the U.S., second is Saudia Arabia and third is Mexico, according to the U.S. Energy Information Administration.
Erik Milito, a group director at the American Petroleum Institute, which represents more than 400 oil and gas companies, said during his testimony at the House committee hearing, the agreement would “provide legal certainty to U.S. companies, which will encourage them to invest in new energy development, creating jobs and spurring economic growth.”
Milito said the U.S. is projected to produce 8 million barrels a day by the end of 2014, but should be doing more. API wants the agreement to be approved “as quickly as possible.”
Encouraging more deep-water exploration in the Gulf could also help Mexico put its fiscal house in order and stimulate more balanced economic development.
Obama will also travel to Costa Rica this week where he will be meeting with Central American presidents to discuss economic and security issues.