When Valero Energy announced earlier this month it was signing a long-term agreement to import refined products at the new Port of Veracruz in Mexico, it was another marker in the continued de-nationalization of that country’s energy sector and strengthening of commerce bonds between bordering nations.
Now that such connections are being made, some say the potential for business in a Texas-Mexico economic region is limitless – and could be a big win for energy consumers as well.
“The key word here is trust,” Texas Secretary of State Rolando Pablos said in his remarks moderating the Mexican Entrepreneur Association forum, “Energy: A Connecting Sector Between Texas and Mexico,” on Monday. “We need to make sure that, in spite of all the background noise that’s occurring, we stay focused on the relationship and continue to strengthen the relationship between Texas and Mexico.
“A strong Mexico creates a strong Texas.”
Established in 1996, the Mexican Entrepreneur Association, or Asociación de Empresarios Mexicanos (AEM), was created by a group of Mexican entrepreneurs to create business opportunities between the U.S. and Mexico by guiding binational business people and young entrepreneurs. This week’s forum was presented by the AEM Energy Committee and the AEM San Antonio chapter.
“With the recent Constitutional reform, it is now possible for Valero to import refined products directly into Mexico for further distribution, including branded sales,” stated Joe Gorder, Valero chairman, president and CEO, in the Aug. 3 announcement.
“This transaction will enable us to extend our supply chain to efficiently supply gasoline, diesel and jet fuel to the growing Mexican market. As we continue to evaluate ways to further engage in Mexico, we look forward to discussing opportunities with Pemex that advance our respective strategic objectives, as well as discussing supply arrangements with independent retail operators.”
Sponsored by Valero, the AEM forum brought together energy experts from both sides of the border, including Mexican Energy Regulatory Commission Chairman Guillermo García Alcocer. García oversees the agency that grants permits for the import/export of electricity in Mexico, and works with natural gas importers and exporters.
At the forum, García spoke of the Valero deal and how it signals the continuation of more private entities looking to Mexico and creating a more market-based economy there. He said what is needed now to generate more opportunities are common standards and connected systems between the U.S. and Mexico.
“That’s an opportunity with NAFTA (North American Trade Agreement) negotiations – to have standards as a goal and that will bring competitiveness,” García said.
The panel also discussed potential for future trade in electricity. Electric Reliability Council of Texas (ERCOT) CEO Bill Magness said there are already electrical ties that can be opened and closed between the countries for the sake of reliability.
“There is growing discussion between both sides of the border, should there be the availability to trade in large amounts with new ties, so I think we will see the discussion is ongoing,” Magness said. “I think the chairman’s reference to standards is critical … You can’t run the system safely unless you have agreement on what these standards are.”
Pablos reminded the audience of several hundred that his job is to make sure there’s economic opportunity on both sides of the border. “And it’s no secret that reliable and affordable electricity is a component that is considered when investment is to be made, particularly in manufacturing,” he said.
“I would think that with the trade in electricity, if it makes electricity more affordable, more Mexican manufacturing could occur. So I would love to see an effort that begins the process of rethinking that.”
As for oil and gas, Mexico already imports 600,000 barrels a day of refined oil products and 400 billion cubic feet of natural gas, and roughly 50-60% of both come from the U.S., according to Texas Railroad Commissioner Ryan Sitton, one of three leaders at the agency that regulates oil and gas in the state.
“That demand has gone up substantially and continues to climb. If you look at projections, you can see it continues to go up.” Working to agree on standards, however, is key to that growth, he added.
“I think that the other meeting point that needs to happen is expectations for economics and how commerce is done,” Sitton said. “From a regulator perspective, my job is not to drive business. My job is to make it easy for people to do business. So I say to a guy who wants to build a pipeline, we want to make sure that pipeline is safe.
“Being a proud American, we always think the way we do it is right, and I’m sure my Mexican counterparts think the same thing. But the more we can agree on how we allow private investment to bring those products, the better it will be. That opens up the opportunity for Mexican people to leverage U.S. products at a really good rate.”
The panel also touched on clean energy. Texas has spent $7 billion to build transmission infrastructure that brings wind power from remote parts of the state into urban areas, a “tremendous” investment, according to Magness. It’s this kind of investment along with advances in technology, like widespread smart-meter use, that will cut costs for consumers.
“We’re just beginning to see the ways in which technology is going to change how we relate to electricity in our own homes,” Magness said. “CPS Energy here is a leader in demand-response areas, and we’re starting to see how that can shift what we’re seeing on the grid.”
Sitton also spoke of technology developments and the impact on the Texas oil and gas industry. Though fracturing has been around since the late 1940s, the combination of long laterals with multi-stage hydraulic fracturing with slick water is what opened up shale developments here and elsewhere. From 2007 to 2014, Texas oil production grew from 1 million barrels a day to 3 million.
“But if I just had oil production in the state of Texas, that by itself wouldn’t make me globally competitive,” he said. “If I just had the largest section of pipelines – literally, over 400,000 miles of pipelines in the state – that by itself wouldn’t do it. If I just had the most complex refining infrastructure in the world, that wouldn’t do it.
“All these things together, plus import-export terminals, are what make the state of Texas so globally competitive … And as Mexico comes into their own, you’ll get the same kind of development where Texas, Mexico, and the United States can benefit.”
For Texas companies looking to invest in the Mexican market, García said there are opportunities available, especially for service providers. “We are the fourth largest consumer in the world of gas and diesel, but there’s a very big market that’s not very well served,” he said. “Forty percent of our cities have no service station. You don’t see that in the U.S.”
There’s also potential for solar and wind power, he said. “The sky’s the limit.”
Sitton said he spends a large portion of his time as railroad commissioner, an elected position, talking to people around the state. “People ask me what I do as railroad commissioner,” he said. “And I tell them, ‘I’ve got 27 million Texans, and virtually all of them want the energy industry to do well.’ Because they know the industry pays for our schools, our roads, and pays for the fact that we don’t have an income tax. So everyone knows the industry is very important to us.”
And as the world continues to consume more energy, Texas and the U.S. can stay on the leading edge, Sitton said, by working together with Mexico to build infrastructure that allows for cross-border cooperation and a smooth flow of products.
“At the end of the day, the more efficient your energy costs, the more all the rest of our economy advances – transportation, medical, technology. So we have to work together to share products across the border, to share natural resources and to allow for new business will benefit both of us.”
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