Mexico embraces shale. Has Europe missed the boat?

Mexico’s energy reform will unfortunately only isolate Europe further from the shale oil and gas revolution taking place in North America, Grealy writes. Funds desperately needed for the European energy sector will flow to governments that are truly serious about shale.

In the UK, some investors would have us, or their clients, believe that the UK planning system is such an immutable force that it would prevent, now until the end of time, the development of any onshore oil and gas industry.

Another side of the narrative is to reinforce the idea that shale is only a US phenomenon, one which we shouldn’t worry our pretty little European heads with.  The UK doesn’t have a constitution of course, but a country that  does is Mexico.  

I’ve noted before that Texas’s Eagle Ford Shale continues into Mexico and shale doesn’t need no stinking badges in that regard.  But shale did have a barrier in the Mexican Federal Constitution.  Inextricably linked with the PRI, the paradoxically name Institutional Revolutionary Party which has ruled the nation almost without interruption since 1920, has been the notion of the national oil company Pemex being the only bulwark against the worst excesses of Yanqui petro-imperialism. 

Unlike the UK  planning system, totemised by all political parties as being as eternal as the monarchy, the Mexican Constitution has changed along with the facts of the shale revolution and has thus abandoned outdated concepts: This from Bloomberg describes the significance:

The flood of North American crude oil is set to become a deluge as Mexico dismantles a 75-year-old barrier to foreign investment in its oilfields.

Plagued by almost a decade of slumping output that has degraded Mexico’s take from a $100-a-barrel oil market, President Enrique Pena Nieto is seeking an end to the state monopoly over one of the biggest crude resources in the Western Hemisphere. The doubling in Mexican oil output that Citigroup Inc. said may result from inviting international explorers to drill would be equivalent to adding another Nigeria to world supply, or about 2.5 million barrels a day.

That boom would augment a supply surge from U.S. and Canadian wells that Exxon Mobil Corp. (XOM) predicts will vault North American production ahead of every OPEC member except Saudi Arabia within two years. With U.S. refineries already choking on more oil than they can process, producers from Exxon to ConocoPhillips are clamoring for repeal of the export restrictions that have outlawed most overseas sales of American crude for four decades.

“This is going to be a huge opportunity for any kind of player” in the energy sector, said Pablo Medina, a Latin American upstream analyst at Wood Mackenzie Ltd. in Houston. “All the companies are going to have to turn their heads and start analyzing Mexico.”

Mexico’s turn towards a reality based energy market will unfortunately only isolate Europe further. Funds desperately needed for the European sector will flow to governments that are truly serious about shale. Speaking to several investors in the City of London who have been anticipating the Mexican move for most of this year, this is another nail in the coffin of European shale. With opportunities in Mexico, Argentina, Australia and China available, why invest in countries where a handful of idiots by the side of a ditch are allowed to drive the entire economy into it?

This is a good point to share a presentation at World Shale in Houston last month by Dr. Héctor Moreira Rodríguez, a board member of Pemex, who stressed that he was acting in a personal capacity. Here is someone who not only faces the future but is willing to act in a responsible way for the national interest even if when it is hard to communicate this to fellow citizens. Doctor Moreira’s presentation is an honest introduction to the problem and an accurate description of the size of the prize.  

From my discussions with him, Doctor Moreira was cautiously optimistic about the necessary constitutional instruments being applied, but would certainly be pleasantly surprised as to how quickly they were enacted.

It would be nice if the UK government in particular were to see anti-shale opponents as a 21st century parallel with the equally disruptive Arthur Scargill of the 1980’s. But here I must leap to the NUM’s defense. They represented hundreds of thousands of mine-workers and had strong support from thousands of others.  But, in large part because they were on the wrong side of history,  they ultimately failed. They also did so because the government did some incredibly unpopular things.

But the only class solidarity the No Dash For Gassers can claim, is one where the richest, most elite part of society are the main supporters. The Green Party, as I continually point out, is even less than 1%, getting 0.89% in the last general election.  

However, local county councils are scared of groups that only rarely are capable of exceeding triple figures. Some people may hate fracking in all it’s forms, but they are a handful. But central government is happy to let this continue. Thanks in large part to a media desperate to show balance, even if it is often an impartiality directed towards people clinically neurotic about modern life, we no longer have a democracy. In the UK, unless there is unanimous support, we end up doing nothing. There is not, and never can be unanimous support. Doubt is uncomfortable, but as Voltaire continued to say, certainty is ridiculous.  And to paraphrase Jack Woltz from The Godfather,  a government in this postion cannot afford to be made to look ridiculous.

The UK Government needs to have more people like Héctor Moreira Rodríguez, and less like Natalie Bennett - or Arthur Scargill. 

Mexico, like many Latin American countries these days, is rapidly turning into the nations of the future. Meanwhile the UK is happy to live with a planning system where the permanent answer is “Mañana “

 If Europe’s Héctor Moreira won’t stand up, we’ll end up with exactly what we deserve: Nada.