Mexico’s Energy Reform Creates Potential for Chinese Investment, according to Experts at Beijing Conference

By Diying Wu

BEIJING – Mexican Ambassador to China Julián Ventura spoke about the potential for energy reform in Mexico during an Oct. 15 conference organized in Beijing by the Institute of the Americas (IOA) and Institute of Latin American Studies at Chinese Academy of Social Sciences (ILAS-CASS).

Mexican Ambassador to China Julian Ventura outlined Mexico’s proposed energy reform during an Oct. 15 conference in Beijing. Photo by Dongshan Liu/ILAS

In a keynote address to an audience of more than 150 people, Ambassador Ventura outlined the proposed reform presented by Mexican President Enrique Peña Nieto to the Mexican Congress, which would open the way for the private sector to invest in oil and gas exploration and production projects via profit sharing agreements with the government.

Ambassador Ventura said the warm relations between President Peña Nieto and Chinese President Xi Jinping, have established a good base for future bilateral collaboration in the energy sector.

Former Chinese Ambassador to Mexico Zeng Gang said energy reform in Mexico would boost the country’s economic prospects and strengthen China-Mexico energy collaborations. He argued that Latin America is experiencing structural changes in energy sector and lacks technology and engineering experience, which China can provide. China also has the funds to invest in Mexico’s energy sector, he said.

Former Chinese Ambassador to Mexico Zeng Gang said energy reform in Mexico would strengthen China-Mexico energy collaborations. Photo by Dongshan Liu/ILAS

Luis Vera, founding partner of the Mexico City-based environmental law firm Vera & Carvajal and steering group member of the Institute of the Americas’ China-Americas Program, discussed energy reform proposals by Mexico’s three major political parties.

Vera pointed out the key elements of the reform: sovereign fund creation, the institutional framework and production/profit sharing agreements. In his opinion, competitive new contracts and the economic health of PEMEX will be critical to the success of the reform.

The Oct. 15 conference titled “China and the Americas: A Partnership of Power in the Global Energy Market,” was sponsored by The Development Bank of Latin America (CAF) and Vera & Carvajal. Among those attending the conference were Latin American ambassadors to China, former Chinese ambassadors to Latin America, business executives, government officials from China, Latin America and the U.S., and researchers and graduate students from around the world.

In the opening session, Wu Baiyi, Deputy Director of ILAS, said the global energy sector is in transition, with traditional energy resources running out and unconventional energy sources not fully explored.

S. Lynne Walker (center), vice president of the Institute of the Americas, talks about the importance of energy cooperation between Latin America and China during an Oct. 15 conference in Beijing. Walker is joined by Wu Baiyi (left), deputy director of the Institute of Latin American Studies/CASS, and Mexican Ambassador to China Julian Ventura (right). Photo by Dongshan Liu/ILAS

Peruvian Ambassador to China Gonzalo Gutiérrez pointed out three major elements in the energy ties between China and Latin American countries: technology transfer, diversification in products and sustainability of production process. He also emphasized the corporate social responsibility of Chinese companies operating in Peru, particularly in the area of social inclusion, labor rights and environmental protections.

Matt Ferchen, a professor at the Carnegie–Tsinghua Center for Global Policy, presented the concept of the “liberal Pacific vs. protectionist Atlantic,” presenting Colombia and Brazil as examples of different approaches to foreign investment in the energy sector. “Compared to resource-rich protectionist countries,” Ferchen argued, “maybe economies that are less energy-rich but more open to foreign investment will embrace better opportunities in energy cooperation with China.”

Chen Weidong, chief energy scientist of CNOOC Energy Economic Institute, noted that the energy demand/supply model has shifted globally, from competition for resources (suppliers) to competition for markets (buyers). Chen suggested that for energy suppliers, competitiveness means national institutional elements and energy efficiency. He advised Latin American countries to focus on international buyers such as China and measures to ensure the security of their investment in the energy sector.

As the conversation turned to the shale gas revolution in the United States, a representative of the State Council raised questions about its sustainability.

Ding Yifan, from the Development Research Center of the State Council, argued that the exploration of shale gas is associated with the high price of oil, and that it would not be economically feasible if oil price falls below $50 a barrel. He explained that China has more reserves than the U.S., but for geological reasons it is more difficult to explore than reserves in the U.S.

“In general, shale gas is a capital-intensive industry and it remains uncertain whether it can last due to changes in U.S. monetary policies,” Ding added, “thus both China and Latin American countries should be cautious about such investments, and this makes China-Latin American collaborations in traditional resources even more important.”

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