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tv   Washington This Week  CSPAN  December 21, 2013 4:00pm-6:01pm EST

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>> i think you are exactly right. low natural gas prices and slow demand are challenging everything right now. that is true for gas, coal, nuclear. in our reference case, we project natural gas price to gradually rise to the point where it makes it attractive to maintain and keep most of these plants around, but that is a very uncertain future. many of the things adam pointed out about demand growth and all those things could affect that and we will be running, and we have for the last several years because the uncertainty makes us look at alternative cases. it is a big issue, and if it is replaced, it will be replaced by very efficient natural gas. it is not as large as one might
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expect because of that. >> a question on nuclear if i may. based on what you said, is it correct to surmise that your forecast for nuclear includes no additional new construction? >> no additional new construction. there are couple of plants that are already under construction. there are four, and there are one or two more -- >> [indiscernible] >> but i think it is probably fair to say that you are not going to see a huge increase in the overall capacity numbers for nuclear, that new growth is going to be just about enough to offset the retirement.
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it adds a little bit. i think those numbers -- last year we had nuclear expanding by a little bit and i think this year we have nuclear contracting by a little bit. >> a question on carbon dioxide emissions figure. i think you said we are down nine percent now from the 2005 peak. i'm just curious why 2005 was a peak year, considering it was two or three years before the economic downturn. what caused emissions to decline from 2006 onward? it seems almost like the zero growth in co2 emissions. when you are forecasting that,
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what assumptions did you make on the regulatory side in terms of what they epa may come out with on power plants, etc.? >> in terms of what epa might do, we don't have a projection for that in the reference case, because the reference case is based on existing law and regulation. so we do look at side cases, those want be published until early next year. on the question of what was so special about the year 2005, i would have to actually go back and look to see if there were any weather effects, light was a cold winter? i can't quite remember what was going on in 2005, but i would say generally speaking, that was in the run-up -- we had a fairly decent time of economic growth from 2001-2005, and there was a lot of consumption of fuels in
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general, including oil and coal, that would have added to the growth in energy related carbon emissions. >> the only reason 2005 was cited -- 2007 and 2005 are virtually identical in terms of carbon emissions. it's just that the 2005 is a reference point that is often used in the united states. we think it is a useful reference point, but 2007, you get the same kind of result, and that is immediately before the economic downturn that occurred.
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i wouldn't read too much into that. >> thanks, howard. >> all the way in the back. >> i want to follow-up on the question raised regarding ethanol. i appreciate your earlier clarifications because the 5% figure doesn't seem to align with the volumetric requirements that are 36 billion gallons after 2022, which is more than doubled where we are now. a large part of that growth is supposed to come under current law through the increase of fuel production. i'm just wondering if you could speak to the forecast in that realm. >> eia has been saying i think for -- since 2007 or 2008, that it was going to be very
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difficult, if not impossible, to reach the 36 billion gallons number. i testified that up on the hill, and i think at least two eia administrators prior to me have done the same thing. what we are looking at in our reference case forecast, what we think can practically be achieved through the combination of what can go into the gasoline pool and what can be produced in terms of cellulosic fuels. there will be more on that coming up. john maples, who does a lot of transportation work for us, is here. howard looked at these issues in detail. i think either one of those would be happy to speak with you after the session here, but basically, what we are saying is that here is what we think is doable in our reference case, and we are as eager as everybody else to see what epa will do with the 2014 ruling coming up. >> also in the back, far right.
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>> thank you. i wanted to summarize some of the things you did today that were different than what i remember from last year and then ask you questions about those trends. if the have the numbers right, you have about 20-22 bcfd of demand growth when you factor in exports, seven or so of industrial growth, three or four of industrial and maybe a little less of power. when you add it all up you got 10-12, maybe 12-13, something like that domestic and about 10 for export.
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it's about one third growth, quite substantial, and more than you noted in the past. on the shale oil, you have declining -- a plateau and then declining production profile. the shale gas just keeps going and going. you like we and many consultants in the business see this sort of constant ability of shale gas to keep feeding demand and serving the growth, but as a matter of scenario analysis, maybe this is jumping at to where you will be in the new year with scenarios, but what other risks that that story doesn't play out the way we are forecasting, and the plateau does reach -- or it just starts to constrain the amount of demand growth possible. >> let me see if i can summarize the question and then provide
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some thoughts on it. is it possible that the growth that we see in shale gas production will not be a strong as we are suggesting? sure, that the possibility. it is also a possibility that we might see more oil production than the rise and plateau and then gradual decline that we are seeing on the oil side. one of the things that we do know is that the resource base for shale gas in the u.s. is very strong. in fact, the resource base, in terms of the level of production that it would support for gas, looks better, at least at this point, to us than it does on the oil side.
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john and michael who are here today worked very closely with advanced resources international in looking at shale resources both in the u.s. and globally, and of course we also look at what work the u.s. geologic service does for the u.s. and other countries. we do know physically that natural gas molecules are smaller than crude oil and condensate molecules, so when you hydraulically fracture one of these continuous resources, shale or other, it is not always shale. there are cases where hydraulic fracturing is being applied to geology that differs from shale,
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but the low permeability formations, very high water pressures open up crack in the rock. they are typically sand that are part of the hydraulic injections, and sand keeps the crack from closing back up again. it turns out that it's easier for natural gas molecules to squeeze their way through the crack that you get from hydraulic fracturing that it is for oil molecules to do the same ring. so that's one of the geologic reasons that we see a rise, let so, and then fall for oil, but we don't see the same kind of
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constraint associated with natural gas. i can think of at least three things that could make a difference in the forecast that our knowledge of the geology changes that gives you either higher or lower numbers, that rules on hydraulic fracturing change that could add to the cost structure associated with producing oil or gas from these continuous formations, and that could make a difference. finally, there are timing issues associated with things like infrastructure. one of the reasons we are beginning to see this big pickup in marcella's production is not that there is a whole lot of riggs drilling right there. a lot of the riggs left to go to
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eagle ford, but what is happening is that wells that have already been drilled that were producing are finally being hooked up to pipeline infrastructure that is being built, so infrastructure issues could lead to higher or lower numbers, depending on how all of that works out. one thing i'm pretty sure of is that the technology and prices really, really matter when you look at what the likely production numbers for oil and gas are going to be, and that it's not just trying to estimate what the resource level is in the ground, but rather what is
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the price signal giving you and allowing in terms of capital investment, and what kind of progress is being made on the technology side that might lower the cost structure. >> we can take one or two more questions. in the back. >> wondering if you could talk a little bit about true exports, not from a policy perspective. i know it's not your department, but the report shows an increase in exports of refined products, which is one way of u.s. crude reaching a global market. there's a report as it stands now -- does it see that as the only way, or do you see an increase in crude exports to canada or swaps of one type of oil for another, which are currently allowed? thank you. >> one thing to think about on the oil export side is, first of all, eia is not a policy organization, so i don't have a recommendation associated with whether there should be more or less exports of products or crude oil. eia's job is to try to assess what we think the economics drive things towards and to show that within the framework of existing law and regulation. on the product export side, there really is not a whole lot in existing law that would
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prevent further increase in product export. there is kind of a natural limit in a sense that refinery capacity in the u.s., 17 million barrels a day, would have to be further increased if you're going to see rodda exports continuing to rise at the kind of level or rate that we have seen over the past couple of years. so there is kind of a natural limit that would come from capacity in the refining industry itself. on the crude oil export side, you are correct that exports to canada or permitted fairly easily, as long as the oil is being refined or otherwise used in canada, so oil cannot go to canada for reexport from canada.
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it's got to be used there. that number has picked up recently. it had been running at something like 50,000 barrels a day and it has now moved up toward 150,000 barrels a day, depending on the month. there have been some reports of crude from texas going to eastern canadian refineries for example. the very first public talk i gave at e.i.a. administrator last summer, what i said was the growth in light sweet crude oil production in the u.s. looked like it was going to to want rise, that the refinery configurations in the gulf of
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mexico especially so the gulf coast area were really set to more easily and economically process heavy higher sullfercrudes and that at some point policy makers might want to look at the possibilities of swaps with a country like mexico or others. typically you do it with somebody that is nearby on transportation issues so mexico comes up in that regard. might want to look at the possibility of whether it would make some sense to allow the light sweet crude to go to refineries in mexico that need
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that and have more heavy sour crude from mexico come into the refineries in the gulf of mexico. so that does require a policy decision but you can see that the trends are pushing things in that direction. that's not the only thing. one of the things that i think that analysts in general, the public and policy makers need to realize is there are lots of things that can happen short of that. refinery configurations could change. you could build facility that is
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would allow a topping or removal of the lighter ends and export of resulting products. we're already seeing a huge change in how oil is being transported. there is oil light sweet crudes are making their way to the east coast to be refined in the refinery there is that like the light sweet crudes and similarly there is some making its way into california. there are also light sweet crudes coming down into the gulf of mexico and feeding into systems there. a lot of that is happening by rail. there is crude moving around by barge. whether you export crude or products or recon figure refineries or change the way that oil is being transported to
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get these lighter sweeter crudes to areas that are capable of using them are all fairly complicated infrastructure issues that require capital investment and lead times. and i think the system is adjusting. ultimately if you think about the time frame during which the rules on many of the policy rules on crude oil were set was in the 1970's and early 1980's when the general thinking was that u.s. demand for petroleum would only go up and u.s. supply would only go down. so policy makers are struggling with the fact that the whole basis for a number of the rules that were put in place has been turned upside down and they are trying to figure out the best way to deal with that.
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and with the following, policy makers have a really hard job trying to think about these things. they've got to look at what the economic impacts are. they have to look at what the national security impacts are and they have to look at what the environmental impacts are in changing any of the energy policy that is they review. and that is a lot of issues to keep up in the air and to handle effectively. and i think it's just terrific that e.i.a. doesn't have to get into those policy issues. >> i think time is running on here. i think we'll close at this point. you show great dexterity as usual taking a range of questions. >> thank you very much. [applause]
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[captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2013] >> he is the top republican on the environment and public works committee and gives his take on some of the obama administration's more recent claimant change initiatives -- climate change initiatives. he speeds of what this might mean for the midterm elections. here's a preview. >> how big of an issue will this be in 2014? lexus take that as an example, that is at least 80% of the whole campaign in terms of what it is about, what the important issues are for the louisiana
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folk. i think that will be unusual. it is a huge issue. >> would you like to see her defeated? >> absolutely. she's helping draw the country in the wrong direction including by helping elect harry reid byieve the senate, supporting ultra-liberals who disagree with the mainstream of louisiana thought lead in different policy areas. >> what is your relationship like with her? >> dr. jekyll and mr. hyde on louisiana-based nonideological issues. very closely together. hurricane recovery after hurricane katrina after national issues which tended to be much more ideological like obamacare. we handsomely disagree. >> in louisiana issue, and wondering if you could describe how in 2010 the gulf coast was
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devastated i am be bp oil spill. since then, there has been no new law, no new federal action to reform the regulations on offshore oil industries. what should happen in this space? aboutu, did you talk this? >> i guess i disagree with your premise. there had not been a big new statute passed that have been a whole redo of off score -- office -- offshore oil and gas regulation. that is a whole new world. it has gone too far and has added unnecessary burden that is not improve safety. whenever you think about individual regulation it has been a complete redo of offshore oil and gas regulation. i agree at the time. >> you can see more of the interview sunday when newsmaker
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heirs of his regular times. >> i was a donor. like so many of your viewers. annuald do the consideration of the things we care about because they were important to us as we draw. the players are communities that we saw doing good work each day. martha's table delivered hot -- to thehe literal little park offices. mcpherson square. i would see that every night. it is volunteer driven, 10,000 volunteers, 80 hard-working staff. they had enormous influence in the community they were serving. it was a great brands.
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i thought why wouldn't i put my skills to work? also to see if i can understand better why do we have this issue persistent child poverty? why do we have so many people that are not regulating high school. >> the president and ceo of martha's table on the nonprofit. sunday night at 8:00 on c-span's q and a. >> next, the atlantic council hosted a discussion on mexico's new push for private investment sector.-- in its energy this gives a week after the mexican congress approved legislation that ended the state monopoly on oil and gas production. this is a little less than two hours.
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>> good morning. i am the director of the atlantic. i would like to welcome all of you to the atlantic council for this incredible timely event on mexico's reform which was passed by the congress last thursday and declared constitutional yesterday after being approved by the majority of state legislatures. i would like to recognize how pleased and honored we are that he is with us today. we're lucky to have him in washington. we are lucky that he is a friend of the atlantic council. thank you very much for coming.
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he did so on very minimal sleep after working tirelessly to get the reform passed through congress in the past few weeks. we would like to welcome the many guest who are here. atlantic council members, friends of the atlantic council as well as those who are here for their first event. i would like to welcome those who are joining us remotely via webcast and those joining us via c-span3 as well. many members of the mexican press are here. a specialranged postevent briefing for them and other members of the press. this to askey hold questions during this event. like to thank all those who helped me this a success.
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and the atlantic council's fabulous external relations team. began operations in october. we are all to a running start. our center was started with the generous support of land pur philanthropist adrienne. we are broadening awareness of many of the transformations of crossed latin america and to change the nature of the discussions about the region and to heighten the potential as a strategic and economic partner for europe, the united states and beyond. cannot think of a better first report been what we are releasing today. it shows the new dynamism and the changeseflects being seen. an editorial this week says that
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opens the door for a mexican economic take off. our report reflect the philosophy of our news center which is a timely analysis consisting of -- assisting yet vigorous. we will speak for about 15 minutes. to take a few questions from the audience that will be measured i the director peter shut -- peter. the mexico rising comprehensive energy reform. he will spend about 10 minutes to get an overview of his findings in the report that all of you should have. there will be lots of time for audience questions.
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we will also be taking questions and c-span. if you want to like sweet the nott, as long as you're checking your own e-mail, you can live it tweet #mxemreform. it is all on the agenda you got. we are joined by a very impressive group of speakers. you have their full bios. i will not read each one. reflate, duncan is the director of the mexico institute of the woodrow wilson center. he is both in mexico and energy expert. he is one of the foremost thinkers here in washington on issues. we are excited that he is with us today. the at the university of texas at austin. yes many years and the energy marytry and leads a and...
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center that combines geology, business and policy and a second ut austin as the new frontier on energy issues. yn is president of global strategies. he is an energy guru, essentially a black belt third degree in the energy world. nuancedincredibly understanding of the energy industry that is reflected in his report. he has had multiple dharma positions including special envoy positions and a variety of energy posts.el where specially pleased to henriquender-secretary ochoa. probablyt slept in weeks.
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he is the point person on many of the issues of the reform. personannot be a better from mexico to travel from mexico to join us and talk about the reform. he has worked tirelessly over the last few weeks to secure passage in congress. he combined his unique and important knowledge of energy and is incredible understanding of business with this intersection of policy. we are so thankful that you agree to come on a plane and come to washington that you endured our customs here to get into the country. discuss the reform of such a busy time. we are happy you traveled to washington right before the christmas holiday. we are expecting a great program. please join me first and looking -- welcoming under-secretary out shoolchoa. [laughter]
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[applause] >> good morning. of you, it is an honor for me to speak to you so close to christmas and so far away from home. slept.not i want to thank the ambassador for being here with us. when peter first asked me to come here, i thought it was such an honor. i am glad that i am here. i want to use a powerpoint presentation to help look at the figures that show how we got and where are we now with the constitutional reform. and what is next. this only to help me with the presentation? we have the history of mexico's recent oil reduction.
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in 2004ed a high point with 3.4 million barrels per day. have decreased by almost a million barrels per day in the last eight years. this is a huge concern for mexico. time wheree so in a we have more than tripled our investment in oil and gas. we put money into appeals. we have come out short. we have not failed that budget in mexico. the prices time, have tripled. as you can see, they were $31 per barrel. now they are around 100. our production declined. economy, then economic impact is in production. next, please.
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.his is natural gas this is not much better than oil production. there's a lot of consumption in the industry. the blue line is our production. 1997 we were sufficient. we produce the same amount that we are consuming. things have changed in the last 15 years. we are importing mostly from the u.s. despite having an enormous quantity of natural gas, we have the ironing of not being able to produce as much as we should. and gasoline, the history is oery similar to the past tw slides. we are importing half of our gasoline.
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we have not been able to keep up with the pace of our liberal economy. we are bringing from the u.s. mostly. 50% of our consumption. this is the last set your within the hydrocarbons which are petrochemicals. these are similar and even worse. now what we see here is that we are importing 65% of our petrochemicals. what you can see in the last 15 years, we have strong degrees and other production. we have an increase in natural gas production. 50% of ourrting consumption of gasoline. we are importing 55% of petrochemicals that does not seem to be the story of strong hydrocarbons.
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this is becoming a net importer of my merry energy problems rather than a strong exporter that we have been for decades. we see here for the first time since 1960, the oil and gas model and battled in article 27 was amended. this inut in to place context. what made it even more the third pool. not to allow private participation. it is really a very transformative reform that they have put through the mexican congress. thatve two of knowledge this is by over two thirds of it members in both houses.
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it past the reform. yesterday it was enacted by the mexican congress. up for this. we start the process. next one, please. >> there we can see how the reform has put the new model. oil and gas is going to be administered by the mexican state to the ministry of energy. there was confusion. these parts were administered. not they're going to be run by the ministry of energy. and extraction which remains a strategic element of the constitution of going to be done through contracts. they were previously prohibited in the constitution. allowe 27 was amended to
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contracts which are common in the global markets. contract. sharing strong a very concentration. it was absent in mexico. we are going to do something that has also happened in other countries that have had this type of confirmation which is around zero. somell allow them to have kind of entitlement that will allow them to start off the limitation of the reform. i will talk about that in a few second. ies will be open. wouldn participate in any mexican or foreign companies
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associated between them. we are also opening up for private participation. most of those sectors were close in public participation. you can also be done by price. next, please. what will be rounded zero? congress has established a pattern. days after up to 90 the constitutional amendment has been published by the president to present to the ministry of energy those areas where they want to keep on working. they have 90 days to present technical elements that will allow the ministry of industry and the commission to side on
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is. technical base the minister of energy will have 180 days after the first 90 days to decide that. that.will be [indiscernible] we will allow them between and three and five years to do so. where they are already extracting oil and all of that, they will keep those entitlements for the next rounds. this from these entitlements they were going to achieve to the new contracts that were going to go into place per second or isolation. that process will have to go theugh, including hydrocarbon commission.
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they have seen these models work elsewhere. next. this is a slide that i like to show. ones thatt important produce oil. you can see that all of them had in their legal frameworks either concessions of reduction sharing contracts or licenses to work. we have the private sector to. there were two exceptions in that area. in these 20 countries, only mexico and hawaii had service contracts. no other type of contracts were allowed. that has heard mexico in an important way. 10, we not only have service contracts, we also have profit production, sharing, and licenses. we are in a group of those countries that have legal frameworks that have allowed
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them to make that your use of any natural resources. next. this is very important. the natural resources, oil and gas remain owned by the nation. this is a fact. they allowed us to be part of the or. how will that new system were? the ministry of industry will accept these that will be open for participation the technical assistance of the hydrocarbon commission. industry besides the technical guidelines within the technical signs of the contract. minister of finance will decide the fiscal terms. hydrocarbon
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commission decides on the winning bids and on behalf of the mexican state caps on the contractor this has been put into work on a yearly basis. responsibility of the technical management of the contracts. the money that comes out from mexicanntracts goes to petroleum funds and development. the going to be base in the central bank. it is similar to that. explain how that works. next, please. this is the msm -- mexican petroleum. it is one of the strongest parts of the reform.
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what we have is a committee headed by the minister of finance. it is ratified by a to third majority. thirds majority. when the money comes in, the first thing that the fund will do is pay the contractors. it is through profit-sharing that establishes costs. it submits to the federal budget of 24 point seven percent of gdp. that is the base that right now that the oil sector submits to the budget.
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basee predicting that the were in maine confident. we will go where they will not be suffering. after we reach that 4.7%, the rest of the money goes into long-term savings. that reaches up to three percent of gdp. reach three percent of gdp, we have that in the back. if we assume there is another dollar, it is in the following way. at least 40% of the new dollar goes again to the savings account. we increased the savings account until it reaches from three percent of the gdp up to 10% of the gdp.
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we get it back to long-term savings. that, up to 10% will go to the universal pension system. they got inspired. be seen to be pretty promising. they are in the regional industry developments. the money that comes to the oil reform comes mostly to long-term
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budget. we establish a base for the budget that would allow us not to have any hiccups. next, please. transparency is one of the most important elements of this reform. he's not satisfied with the way it is work so far. to have a new mechanism to do it better. the constitutional element goes to that. anybody can see it. this was being quoted in oil and gas contracts. the citizens of mexico and the world can align and ask for
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those permissions. these are all associated to oil and gas contracts. the money goes to the front. transactions shall be made public as well. to supervise cost recovery. it is very important. it is going to be public and transparent. we believe that we are stop wishing the four elements. in addition to that, there is an article that allows congress to establish special legislation. i am sure you have many questions. i'm looking for that opportunity.
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they're savaging the guidelines looking forward. up to 120 days for secondary legislations which we believe will go through with the next process of congress will be between these dates. many will be fixed by congress. i just hope that they will invite me again on april so we can have another conversation. thank you very much. [laughter] [applause] give us 15 minutes for questions. >> my welcome to everybody. i am going to do something which my colleagues know i rarely do, stay silent. i would like to open up for 15 minutes to a couple of questions from the floor or the undersecretary.
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>> it has been my experience that they have held their geological data very close to the vest. my question is will that be disclosed in general for all of mexico? will you have it remain for when you open up a particular area that it will be available and how will it be available? >> these are very important questions. the constitutional reform establishes that the information they have been able to collect to the the years goes natural hydrocarbons commission. the objective of that is to be the to make it public once areas have been selected by the ministry of energy. what we are opening up is that the national commission would make public the information that we have had for that area. in addition, we are giving the commission the responsibility to
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contract private sector or to do the studies. we only have two dimensions studies. we need to increase the studies that we need. we open up the commission to be able to go through contracts for more information. we show the information. >> let me take something from here. >> i'm curious about the referendum. is there actually a realistic chance of this could stop the reform? >> thank you.
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i do not think so. is something that will still be debated in mexico. secondaryw, insulation to be approved by congress in order to regulate what we call a different ecological effect -- technological affect them the referendum. the process has not been started yet. continue with our constitutional reform. it has established during this. >> how will this get resolved in the end? it is not there yet. >> will there be in emphasis on
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the onshore versus the offshore, both of which have tremendous potential but different? >> thank you. he is very interested in keeping this onshore. what is happening with ground zero? once this is approved, it can go looking forcess of help. we will also be very open to see in shallowant seeds
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waters. it seems to be the case that areas in the deep water of mexico in the northern part are from texas. it seems to be more promising for participation. >> please. >> georgetown university. >> with for microphone, please. >> united states and germany veryembarked on a ambitious plan for clean and renewable energy as hearts of the energy transformation process. could you talk a little bit about your plan for energy efficiency -- efficiency and standards in that regard? >> thank you very much. it has been a very important topical conversation. two of them are in the
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constitutional reform. can come up with a transition plan. it is going to be the responsibility to the ministry of energy. see it is a very important, transitory you'll -- fuel. big ironywe have this in the country that we have strong resurgence. in means we would like to burn more natural gas to produce electricity in mexico. we do not have a strong supply and natural gas right now. we are burning fuel oil or diesel. more polluting but more importantly it cost us over four times more than if we would be burning. for environmental reasons, we
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are not producing enough natural gas in our countries. more importantly, if we produce more electricity with natural gas, we would be able to use electricity in mexico which are very high. on average we are over 25%. we are paying 25% more electricity and mexico then you guys pay in the u.s. that is in our business sector. there are many areas where he have to tune it. it's part of the money that has been collecting, we will go to the renewal of energy. particularishes a responsibility for congress. it is 120 days once it is published. is as legislation to push forward renewables. it has to be enacted. we have the strong potential to have electricity.
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we have 26 different laws that have to do with that process. there's not a very clear process on how to get there. you have to deal with different institutions. you go you have to go back. it is just not right. we now have that responsibility through the constitutional reform to do it better. >> we will take one more question. the gentleman in the aisle. you, sir. thank you. wait for the microphone, please. >> i'm david johansen with the u.s. international trade commission. it has been 20 years since the act was implemented. there has been discussion in the united states and mexico. naftae implementation of lead to the opening of the energy sector to foreign investment? thank you. >> i was very young when nafta --
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[laughter] i will say that obviously we are looking to go in the same direction. hadhe near-term, we have eight decreasing production of gas, of gasoline and of petrochemicals. that is the need of the mexican government. their responsibility to change the framework. secondly, we are interested in having a better economic integration. in a way that allows us to complete on a fair basis. if our cost of gas and electricity are higher than those of the united states, we do not benefit mexico or the region. we need to establish mechanisms areake the whole competitive. i think this reform colleges both objectives.
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>> thank you very much -- i will take a couple of more questions. i will be around, please. >> we will come around with a larger panel and a few minutes. i would like david goldwyn to talk a little it -- bit about his report and frame it for the panel. [applause] >> thank you. mr. ambassador and mr. secretary, let me say inc. you to the atlantic council for the privilege of being part of this report. ofant to thank three members my team that are indispensable that made immeasurable contributions. make inthe finding we this report is that you have to appreciate what a remarkable feat of political statecraft and statesmanship this reform is. here in washington we pat ourselves on the back if we get
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bipartisan agreement to keep the government open for a few months. in the course of a year, mexico has the agreement of three parties that don't agree with each other much that education reform, labor reform, fiscal reform, and now with two of the three major parties, energy reform. it is a formidable accomplishment. it is breathtaking in its scale of ambition. if it succeeds it will move mexico from being a major to by 2025, i think a said -- i think a strategic supplier of oil. think you have to understand that these changes are permissive and directive in nature. the constitution permits private investment into the upstream, midstream, and downstream, and directs legislature to create legislation and regulations to create that regulators to create regulations. it is all about execution and implementation.
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there are five major competence of this reform. the first one is the introduction of private investment into these three sectors. the second is that mexico has second -- separated energy policy from supervision. that is classic to practice -- best practice. environment, managing the hotline system that have to be stand up. is the transparent petroleum fund. much like the norwegian fund, it has independent supervision, caps on much money will come out for the federal budget. the mexican system will be among the most transparent. it will have a degree of public accessibility. reports of funds and cost paid by the industry are directed to be transparent as well as the fund itself. that is quite remarkable. fifth is its commitment to
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sustainability. both electricity system and the hydrocarbon system are supposed to be sustainability goals. mainnse is there are three categories for commercial opportunities here. joint venturess with amex. developed when they were high-pressure and then they were more or less abandon as they moved onto another high- pressure field. with basic enhanced oil recovery and a good deal of capital. -- islikely they can likely mexico can increase its production by 3000-4000 barrels a day. know what kind of offers they might get. the transitory articles in the constitution indicate that reserves will be bookable and they have taken every pain short of saying book reserves to say
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that this system is design to allow companies to account for the future benefits they are entering into. i think these will joint -- i think these joint ventures will be the first opportunities. the second i think will be the seismic area where there will be a need for 3-d seismic for both cnh and for company. a year of be after legislation, the new deep water. that is where you will see the greatest flood of private companies. we see seven significant challenges for mexico to overcome in a calm pushing this reform. the first is managing expectations because as people know, the ramp-up is kind of slow and it will take a couple of years to get all of the regulators stood up. there will be a gradual but not and ask financial rise -- but
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not an exponential rise. you need to develop an transport gas in order to substitute gas for fuel oil. it will be a while before you see those results in the electricity area. in the next five years, they will see the lions share of these benefits. the second challenge will be delivering competitive oil in gas exploration terms. there is a finance ministry on the terms. they have to move together and move quick. that to be competitive or we can be in a world with $80 oil. find out when we will figure out which scheme will apply to which form of acreage. will it be a concession, willoughby profit-sharing? -- will it be profit-sharing? five fantastic framework
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regulates, but you will need people, you need rules, you need to move fast. whether mexico outsources and brings an external expertise to rates the gap to where they train their own core hold up -- own cohort of regulators. the third is radiation for the power sector. there is not enough -- as much detail in the power sector as opposed to the hydrocarbon sector. will they be able to sell to customers direct and how? what price? electricity and gasoline prices are subsidized. subsidy reform dropped out of the reform. how subsidies are dealt with i think will affect the power factor site -- reform as well. the frameworks is five independent directors, the minister decides, relatively autonomous. how big is the dividend going to be? be government is still going to
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be relying on amex in the early years. in thet the money upstream rather than the downstream? this remains to be seen. the sixth is trusting the market. if it turns out the best economic proposition is to import gasoline, will that be ok? the seventh is local content. there is talk about the need for local content rules. what will they be you -- what will they be? will be like brazil? it does not 10 -- it is not intend to follow the brazilian model. i think there are for terminus opportunities for mexico we're. first, it is to be best in class. this is a government and do structural reform and move quickly. among the other countries, it implemented well. this will move mexico to the --
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but anot just in energy, country to invest in. the second is prosperity. -- obviouslyis the if this work, you positive traits for manufacturing, job creation, and in terms of energy investment if this model works away it is designed, mexico will be in pole position in the hemisphere. if your choice is brazil, colombia is extremely competitive. where do you want to be? i think mexico as the chance to be the most competitive. the third his stature. the ability to implant these reforms will give it stature from transparency, from the agility, from the market competitiveness. that has credit on the international stage. supplier bytegic 2025. .exican production will begin
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2023, 20 24, 2025, that is when it peaks. mexico could take that play -- p lace. as impressive as they are, are necessary but not a sufficient condition to create these reforms. you have to have wrote -- you have to have the legislation and regulation. you have to have some speed. we also call it mexico rising because there is no question that while the road to implement this will be bumpy, there is no turning back. the government has made this commitment. it is a remarkable a couple and i can only say that mr. ambassador and mr. secretary, we wish you well in completing it. thank you. [applause] >> thank you. they're going to put extra chairs appear and i would like
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to invite the analysts -- the panelists to come back up. >> [inaudible] great. please.
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why don't i take the furthest away and -- mr. secretary? david, jorge, duncan? >> thank you. >> thank you so much. >> again, i am peter schechter, latinrector of the adrian america center. thank you for the presentations. last week i was reprimanded in an interview by a journalist for being too enthusiastic about what mexico has done. to my panelists, that is a warning because i'm going to try and redeem myself and be overly severe. i am going to try to center my questions on three principal mechanics ofis the the reform, the business implications of the reform, and then, what are the implications
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for mexico and mexico's you jury? -- future? i am not an energy expert. i am a commonly found washington policy civilian. let me start with duncan and asking for his comments. i would love you if you could place those comments within the context of what is is going to mean for a new north american revival, in particularly the in industry, but now that nafta is coming on to his 20th year, what is nafta 2.0 and what is the reform in that? >> thank you for inviting me today. i would ask of the sacrament -- paramountthat it is a -- paradigm shift. i fell into it almost by accident back in 2005. it actually emerged at a meeting in mexico city.
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we were talking about the future of north america. the one question that kept coming up is what we do with energy? the situation was very different back in 2005-2006. the concerned -- the big concern in united states is energy security. where we going to find the energy, oil, and gas to power our economy? fast-forward eight years and we are in a very different situation. the united states is now a situation where it is looking at regional energy, or north american energy independence and autonomy. situationing at a where it is going through a shale revolution and feels more secure about itself. it is a very important dimensional understanding, the way in which this reform in mexico is being received in the united states. if you talk to people in houston you see enormous excitement about the business opportunities. you speak to people in
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washington they say, that is great, we are happy for you guys. that is different from 2005 or 2008 when the last attempt to energy reform was put on the table and ultimately failed. north america at this point in time is in a much, much better situation than it has been in the past. mexico's reform is kind of like the icing on the cake. it means that we are going to see potentially another million barrels of oil production per day added by 2025. i would publicly put it a little bit later than that. see, rising to levels of natural gas production. we are going to see the possibility -- and i think this is the key point -- more than just production figures and reserves, we see the potential now for real energy market internation -- integration in north america. it touches on things that enrique already pointed to. we need to guarantee not to
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supply but stability of supply of energy for the producers of north america. loweed to keep energy costs in the united states and canada and we need to lower them significantly in mexico. partially, that is for competitiveness and partially it is because people needed. people in mexico spend up to 1/3 of their income on electricity per month. the energy reform we saw go through congress right now is something that really offers that are stability. i think it is a -- that possibility. i think it is a game changer. in the first 120 days of next year, we are going to see that. enrique, i know you graduated from -- in 1997. i was there. gave the samef he speech that he always did at the graduation ceremony. i had here at like 34 times as a
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director of row graham. that program. always says -- he -- [speaking spanish] it is moving forward. it is moving onto the next stage of life. there is so much to do and that is why this own port and we keep our focus on the oil and gas sector. >> thank you. it is a great segue for my question for jorge. austin withes from a very academic hat on now, it is certainly not where he spends most of his life or it you are the only one in panel who actually was an oil executive. and in mexico. talk to us a little bit about what is going through an energy executive's mind right now and how does it seemed to him as a ame changer? how does
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spanish, french, or u.s. energy mexicove choose between or angola or trinidad? what goes through an executive's head. >> thank you for the council. thank you for being here. just like in your example, in business sometimes the easiest thing is to set up a strategic plan. the tough part is the plan to implement that strategic mission. that is the toughest part. all of us have fought to the challenges we are facing. i hate to say it, but maybe this was the easiest part of the old he -- whole energy reform part. because of all these great expectations i think there is a tough road ahead. i don't represent the industry, but after working in the ag sector and oil sector for 35
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years, five of those in mexico want to basically focus my comments on three areas and that way we can get some conversation from the audience. i want to talk about pamex. they are not going away. they are not going to be privatized. i don't like the word privatization. i preferred the word recapitalization. hopefully become a place for private capital can participate in the growth of a extremely important company like them. hopefully what we will see in the future is the recapitalization of pamex. we have to make sure they are able to compete in this new world. they cannot -- they can play in an poor role -- they cannot play an important role if they have one hand tied behind their back.
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the fun thator, of is going to go to science, that is extremely important. that is one of the areas we know that is very interested in. amex is going to go through what -- pamex is going to what i let mer a brain drain assure you that a lot of the geologists are going to come from there. a lot of these companies are to hire folks from pam in the next five years, they are facing a lot of retirement threats from petroleum engineers and geologists are going to retire in the next 3-5 years. base is a huge knowledge challenge that they are going to face. the most important things for to asked to change -- pamex
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change is the culture of entrepreneurship and a culture that the company learns and oil business when they become international. the u.s. maxned in -- u.s. gulf of mexico would shell. they're hoping doing that because they hope they will make money would shell what it is learning how to develop its deep water resources. that they important alsoineering of pamex becomes a very important piece of this energy reform. my other comment that we will be the oilat from company's point of view is the -- sector. pamex has about a 2 million -- 2 million barrel demand a day.
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boilerplate, refinery capacity, but there is 1.2 of the capacity. there is a huge gap of over 600,000 barrels a day. it is a value of over $20 billion a year deficit. it is an issue that also has to be addressed. a $10finery, about billion, $12 billion project has been stable, but i think that sector is going to be extremely important in mexico. 10re going to see if pamex joint ventures with u.s. refineries. it takes anywhere from 3-7 years to build a refinery system. there is an adventurous possibility in the u.s. gulf of mexico. last, and i think this is very important, is offshore safety.
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we were having a meeting in tampa talking about offshore safety in the gulf of mexico. thatre very pleased to see -- was there. they had a very important presence in that meeting because as mexico begins to drill, we have the pegasus, we have submersibles that are the drilling about 30 million -- 30 miles south of u.s. maritime border. what happens on how we are going to manage the catastrophic event like deepwater horizon in mexican waters. we do have an agreement. it is a good basic agreement between u.s. and mexico on how to handle from a technical point of view a major trans-boundary event like this. who went to the deepwater horizon incident know how difficult it is to manage such
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an event. i think that offshore safety is something that not only the industry, but the united states government and others should be very concerned with. >> thank you. let me ask and retake, who i rique,- and rick a -- en who i know had -- getting this done, but limit look towards the future enemy ask you about managing expectations in mexico. this reform promises a lot. a lot will not come so quickly. that the reform is not that popular. the economy has not taken off in a definitive way. -- how doesresident the president to going in these political parts?
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--you fix the policy >> there was an interesting question, but first let me take on the fact this was very easy. [laughter] i'm looking forward to the difficult part. let's see how that plays out. it is truly in achievement of the country. for political parties improve political -- four parties approved the reform. i think it shows the president possibly to ship. with the polls, it really depends, as in mexico -- many important issues what type of questions you ask. you ask the majority of people, they're in favor of having a lower cost of electricity or gas. you want to privatize pamex, you
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have a high response of no. this reform is not doing that, of aim to decrease the cost electricity. i believe this reform as it evolves will show benefits to the mexican people. we have been very careful polling the instruction of the president not to establish a timeline that it is not going to be achievable. david's study ascribes accurately, that it will take time. the reform establishes a timeline and we are going to follow it. -- we deal with pamex and that we migrate from those -- two new contracts. pending on secondary legislation that will be put to congress in the next. .
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once they approve that, we are looking at a one year. to transitionmex to contract. around 2015, 2016. many of the people with us today know that england's ancient in brazil and colombia took time. and shell oil in the northern parts of the country or shallow water or round fields -- awn fields would show reduction earlier than big water in mexico. we are estimating our oil production will increase from the 2.5 million barrels per day that we have now to around 3 million barrels per day by 2018
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2025. 3.5 i we think that is a fair estimate. we need it in increasing -- we need an increasing amount of natural gas to around 8000 cubic and 10,400 by 2025. it will decrease the costs of gas electricity -- and electricity. believe the numbers are there. to numbers of foreign direct investment, we have seen many of the companies that made those estimates show that about $10 billion by the end of 2018 of foreign direct investment in the sector. oft is an increase by 50% what foreign investment is in mexico today. that is a huge job if we achieve
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that number by 2018. those are estimates from private sector think thanks. tanks.k on jobs, we believe there will be over 2.5 million jobs by 2025. those of the estimates that we have put forward to the mexican people and we believe that is obviously something we will achieve in the mid-range and long-range. we don't think we will have something immediately. in order to get it right, we have to do it one step at a time. we are permitted to do it that way. because itsk you, outlines where we are and where we are going to be. fill in for us for the civilian like me -- how to i measure progress along those roads? what are the milestones that we for that thising is on time deck of if you'd to that, who has done this really
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well and what example should we compare mexico to as the best case scenario? >> i have for bellwethers that i would watch in the next few months. the first is legislation. they party drafted legislation, but we need to see what those frameworks look like. what we know about the terms? legislation is the first benchmark. the second is going to be what it. if the cnh is a significant theet allocation, if we see agencies are funded so they can hire outside help to be able to stand up to safety rules or the environment roles or even a licensing requirement, then we are going to see that we can predict -- the regulators will be in a position to move swiftly when the time comes. the third is outsourcing and in the power sector, you will need a lot of or information about
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the nature of distribution, whether there is metering at the houses. what are the size of the load centers? that information is going to have to be organized and presented for investors in a way they can understand. i be watching their budget and if there is no help on their. fourth would be leadership. would we see shadow leaders of processes? we should start to see shadow leaders for the safety effort for the environmental effort probably if there is a tossing up the leadership. those of the for bellwethers for me. resulted a right the first time but then their second reform has taken it back. i would say the opening to the upstream, norway, brazil, following that model, the transparency. i think the u.s. and norway have done it but algeria did it, iraq did it, libya did it.
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the system of open criteria. you open the envelope and see who wins. the independence of the regulators, i think it remains to be seen whether they are safety case or performance standards are what kind of regulators they are going to be. colobia has a terrific -- colombia has a terrific regulator. i think it is only norway that has done this with the kind of political and fiscal independence that mexico has got. >> can i come in here? i think it is worth spending a moment to talk about the regulators. that is the key element right now. the question a lot of us have is , we have a very small, underfunded national commissioner at this time and in a relatively short. of time we are expecting them to inher find the human capital mexico or bring them in from outside. i think that is a real danger
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here. is theaid very well -- commission going to be allowed to recruit international? would have the resources to do it? will be attractive enough? a strong,ot autonomous regulator then it will be a real problem for both companies wanting to invest in mexico and for the benefits that would be distributed to the mexican people. >> jorge, what role can institutions like yours play in cooperating in some of the technical assistance? i think there are a lot of universities in the united states that had a long relationship with mexico and pamex. we have numbers at we are working now on shell gas development. we're talking about water resources along the border and what impact shell development could have to water resources. -- bynly our universities
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the way, partnerships with we the national science foundation -- the resources are there for us on our side of the business. again, the academic and research side of business to add value to this process. remember, there is a heavy involvement in research and process -- partnerships in the american universities with the private sector. that a u.s.question institution and incorporation with partnership with mexican institution can play a key role. andhis is an invariant port -- this is a very important issue. the constitutional reform has taken notice of this. one of the stronger elements of the reform is that article 28 of the cost of tuition, of regulators -- of the
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constitution, of regulators have to attain a constitutional status. they have granted technical it autonomy. something that is called [speaking spanish]. what is this mean? for the service provided, they collected fee. up until now that fee would go into the ministry of finance and into the budget. they would not be a -- they would be allowed to keep that fee. now they would be allowed to keep the fee and allow to have it in a trust account. to threet account up years of their yearly budget. that means they will have a trust account for almost three years of what their budget is like. they would have enough resources that would be for why their own
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services to be able to do all these type of things. we are holding from a system that is mostly out to regulate into a system that will be regulated by others. we are migrating into that and we are fully aware that we have to be very careful into that transition. be two new members for each of these regulators. there are right now five members. seven- going to be a member regulatory board. this is because of increasing the weekly that workload. -- this is because of increasing the workload. we think will be a fundamental part of the new model we have achieved. >> all of you have mentored -- mentioned the word transparency in your marks, your comments. clearly, the reform aims to turn a page. how did the mexican government
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guarantee that transparency? particularly in light of pamex becoming eventually more independent. how they prove their independence from the very beginning? steps ofthe transparency, really con street -- concrete steps people will be looking for? toi think the first step is really learn what best practices are out there in the world are is to -- ond thing to be available online and easily accessible. it should not be hidden behind various hurdles you have to get over. industry has to play a role in making sure that things remain open. -- oilernational oils in
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industry his story has not been the most transparent industry. havecent years, they started to realize that transparency works in their favor. role andiety lays a the government should work with it. >> i think the role of the industry has changed considerably in the last 20 or 50 years. i think we do welcome transparency. we do welcome good governance. we have many companies -- countries in the world in which we have huge challenges because there are a lot of things we would like to implement that as part of the corporate core or the corporate belief, in some companies it is extremely difficult to implement. i think transparency not only from the industry is welcome, but also i think transparency in the whole process is welcome. there is a lot of data, both
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data, that weic have to share now. that consortiums in universities in which five or six different private companies participate in them. they share knowledge and they share new licenses and new procedures. transparency is very important, but good governance within the country in we operate is extremely important. i think that will be the case in mexico, by the way. i don't have -- i don't have any question, having lived there and having traveled there for the last five or six years regularly, that there is a culture change. that there is a new reengineering not only of pemex but reengineering of mexican society. -- by the way, i don't mean to reform process was easy. folks have to understand -- i did say that. [laughter]
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but i didn't mean that. people have to understand -- the first thing when i was sent to mexico, believe it or not, i corporation sent me -- my corporation sent me for a three- week course in mexican history. you have to go back to the mexican-american war of 1847, 1848. people forget that the u.s. marines were in the port of veracruz in that time. there is history of that whole culture. it also ties to be march of 1938 that we have to understand. the political and historical currents that it took the administration to move this reform forward. yes, even though from a context,l-political the process was difficult and not easy, what i meant to say is that from a business point of now, this is the easy part, comes the imitation so we can
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get to those targets that we are looking at four 2020. >> i would add really people -- wrigley that -- i would add quickly that it is remarkable that people have to look at the constitutional status that contract transparency, custom 40 transparency, and reporting of the distributions of the national fund are basically commanded at the constitutional level. i don't think there is another country in the world that has a constitutional level directive for transparency. i think that is impressive. i think smaller steps that will be important is that looking what the auction system looks like and join something like the extracted industry transparency initiative will give a platform for civil society to participate. it is a popular international movement. >> limited the last word before open up to wetjen's -- let me give you the last word before we open up to questions.
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to different countries to see how the different oil models work and we learned from those who have transparency limits that work well. we have put them into the constitution so we can have a mandate, a very clear mandate to make them enforceable in the law in the regulatory next steps. we are fully committed and i think that is most important. the mexican people are not satisfied with the way transparency has been dealt with in the past. we need to do it better. bell civil society will highly --. we are analyzing it. >> thank you. i would like to bring all of our other guests here and, sir, why don't i begin with you?
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>> stephen donahue. thank you very much. perhaps it is on purpose, but there is some ambiguity about the issue of booking reserves. paper, says it is clear that it is the intention to allow companies to be able to benefit from the future you of what they are doing. i have not heard you quite say that. we tell us how the government of mexico will use this going forward? that really is the fundamental issue? achieved inress has the constitution, we believe, is standard practice. contracts, has to be established that the property of oil and gas of the mexican nation. but those contracts are also available to be able to report the future benefits of those for filling the legal
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request that the companies have. are going to standard international practices. that is worried we see the transitory article. >> i will add that the sec will ultimately want to look at the contracts and look at if there is an element of risk. if they see that in the form of the contracts, they will make a determination if those reserves are able to be booked by companies. in terms of the political culture from both talking to our colleagues here and some of the opposition parties and appreciating that the threshold for legislation is aware than the threshold or constitutional reform, the entire initiative makes no sense absent the ability of companies able to vote reserves. there is deep knowledge and recognition on the part of the government that if companies cannot book reserves, they will not invest. they would not have gone through all this effort to try and worse is constitutional change knowing it would take constitutional change without it.
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you have to see the contract. in the legislation -- those are the two big bellwethers. how much the definition of the schemes are defined in the legislation and how much visibility there is on the terms because there are all these companies that have models and a crunch them, what is the return on investment, and that it's what makes mexico and not curtis tanner some other place you -- and notkurdistan or some other place. >> my question is about national content and what the thinking is around national content. that has been a big issue on the hemisphere and the extent to which of mexico deals with the national content issue. it will put it more competitive or less competitive versus other options in the hemisphere? >> one of the constitutional
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transitory articles says that in secondary law we will establish percentages in the areas in the timeframe for national content. what we have learned in other countries is that it is outcomes to one of the is to have a strong, national industry that produces services and participate actively in a transformation of the oil sector . we're aiming for that. it will be in the secondary legislation that we will establish the guideline. we are also aware that some of the examples in other countries have been that you put such strict rules international content that it slows down imitation of the report or that it makes it more expensive in its process of implementation. another strong element is establishing direct investment. we are looking for companies out there right now based in the
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u.s. that would be able to be based in mexico and have an important offices there and producing things there and mexico in order to bring them instead of buying the product from the united states to buy products from mexico heard -- mexico. brazil has been very successful in achieving that. its own private sector has become a worldwide reducer of services in the oil sector. we are aiming at that. we are also aware that we have commitments in free trade agreements that establish we have to have equal treatment of investments. secondaryo crack the legislation, we have these three elements to put into place in a correct way. >> as we are sitting here today, there are a number of exit in companies today in houston already talking to u.s. companies, in particular service contract and petroleum service company. it is not only foreign
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investment of the issue of foreign dollars going, but i think countries will come over here to join adventures with u.s. companies. you will see in the next five years a very considerable number of very good quality exit and companies that are going to be very good quality mexican companies that are going to be the future of the industry. i think the mexico case will be different from the brazil case. someone asked about nafta. i think this is an area where the nafta infrastructure is going to help the relationship between mexican small companies, medium-sized companies, small companies that provide services and equipment to the oil and gas industry in mexico during your venture with the u.s.. that is a huge area of growth to me, by the way. >> is important to remove her that we sit here in washington or houston say, we don't want the national content
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requirements to be too high because that will be a barrier to investment. we also don't want it to be too low because part of this goal -- if this is not just about oil and gas, it is about helping the mexican economy, about increasing competitiveness and adding jobs. if we want this to be sustainable in the long term, the mexican people need to feel a benefit from it. that is why i think it is incumbent upon both as is and government right now to work together to work out what would be a fair level of the national local content for the government and pemex in particular to work with providers throughout the country to build a national, indigenous supply throughout the country. >> the back of the room. sir? the gentleman who was standing? secretary ochoa, peggy for
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coming to washington and thank you for your powerpoint presentation. my question concerns the valuation of blocks. prior to an auction on international market prices, who will determine the valuation existing fields and what are the criteria which will be used to determine their value? flex -- >> thank you very much. i will leave that presentation to the atlantic council and thank you very much for having me. the ministry will make a balance with information from the commission. ministry of finance will make a fiscal calibration of the contracts and then the bidding process will be taken off by the national hydrocarbons commission will announce the winner & the contract on behalf of the mexican state. the secondary legislation will
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establish the framework for which we will do those economic analyses. the industry will require case- case-case -- case-by- analysis. will allow secondary relations to establish a framework and it will be up to the ministration this ministry ofenergy and ministry finance on its responsibilities to turn in each contract depending on the quality of the field. >> this is an area of risk, i think, to take an area -- say show fields or deepwater -- as a this is the framework we're going to apply and these are roughly the terms, it creates a way to scale a lot of acreage and one-time for auction where the market will determine the price. -- fioe feel-bi-field
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field, then you run into problems -- problems of, will it be a way for pemex to get preferential rights? i know that is not the design. i think you should focus on what is the most efficient way to get those blocks up for auction and how much flexibility there will --for companies that hire have higher risk in other areas because of the cost versus profit sharing. aged --s done the acreage valuation correctly? >> are actually, at least in the deepwater gulf of mexico. we run the seismic. we do a geologic assessment. we make that data available manning goes up for auction. market determines the price. in times we have seen high risk like in shale gas, but like in
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the deepwater wind guest rices were -- in deepwater were prices were $10. both of those incentives expired when we did that. we saw an area of high risk and wanted to maximize the rewards. we did it by area, by type of geology rather by field. i think the norwegians do something similar. even the u.k. has something for marginal fields and one for deep water. easier it is bureaucratically on the licensee -- licensing agency. >> deepwater versus shale, for example. >> we're following that. the first variation allowed by secondary legislation and then we will -- >> gentleman in the back, i know, has been waiting for a while. >> thank you.
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thank you, secretary ochoa, for being here. the pricesmentioned of electricity in mexico being a little bit too high, especially in the northern parts. i am a witness of this. even the production will open up and production costs will lower down because of the openness, distribution in electricity and -- electricity is still controlled by a national company. what opportunities will be there? is it considered about opening up the national company and what opportunities could be there for businesses? >> that is a very good question. that was a part of the energy reform. strong transformation in the electricity sector. this is not my field, but let me give you some of the important lines of this reform. the transmission industry are
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monopolies. the way this reform allows private participation is through .ontracts through cfe it is the national power company. way that the brazilians did their own transformation that allow the of the company to establish contracts that will allow it to build a new transmission industry. the in mind that 80% of price of electricity comes from that cost of the fuel that you used to produce it. that is a big opportunity there for natural gas to have an impact in the whole area. the other important part in inefficient distribution system where we are losing around 20% of electricity that we conduct. this is due to technical failures in some areas. it is more like social problems that have introduced and people
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are not paying or people are stealing the electricity. we willthese contracts, find a mechanism to make these lines more efficient. ,f you see the percentage having a market of electricity, having substantial natural gas and were nobles -- renewables that can with a mix of gas and electricity will make the cost go down significantly. if that is a percent of because of electricity, we can translate that to the consumer and have better prices. it is a huge transformation as well and i would suggest that you invite the undersecretary of electricity in january. the reform is very important because it was a reform. they got to a secondary position but hydrocarbons have taken more of the attention. electricity is very important,
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too. >> you transmit to the undersecretary that the floor is open for him. david, i know there is a section of the report on electricity. welle undersecretary is known in washington. we would be delighted to have her here. i think this is an area where there is great opportunity but the framework makes all the difference. it may be in mexico that distributed generation is going to be the first area of opportunity rather than great extension. places where people can have areas ofy small electricity. there needs to be visibility and flexibility in legislation to allow those relatively smaller generators to be able to sell directly to customers. relying on cfe for collections when collections are not good and relying on them for security when transmission is already weak
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will be a source of insecurity for it investors. some flexibility there would be helpful. subsidy is the other question because as long as residential communities -- residential communities are subsidized, -- you can create a system where you can extend transmission and ring in the capital. at some point, you're going to have to open up the residential base. no one will be able to provide electricity cheaper than an existing subsidized system. in the initial draft of the reform there had been a transitory note that called for moving general subsidies to targeted subsidies which would be classic economic theory. right now, everyone in mexico city gets there first 250 kilowatts of electricity free, needer you are or you subsidy from the government.
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it is the framework that i think still need to be worked out. in the roomf you know, is a bazaar pricing system in mexico. it really is. some people and up paying very little and some people that's when you jump over the barrier in terms of residential consumption, the cost of every unit of electricity you have used goes up in or mislead. working out -- goes up enormously. working out how to use the subsidies but at the same time lowering the cost is part of the conundrum we are looking at right now. it is very important in political terms because this is where the average mexican is going to feel the benefit of the energy reform. jobs andan talk about competitiveness and all the other great things, but the average mexican on the street wants to see that promise of lower energy costs and lower fuel costs as well really come
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through within a reasonable. of time. once you have a greater -- inipation by private the system and want to lower the cost of these natural gas for combined cycle


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