Long restricted in their ability to do business in the Latin American country, foreign firms are taking new interest.
A new agreement between a Calgary-based oil and gas firm and Mexico's state-run energy company is being hailed as a significant deal that could signal the beginning of a shift in what defines the Canada-Mexico relationship.Canadian company Nexen Inc. and Mexico's Pemex signed a memorandum of understanding earlier this month in which the two sides agreed to collaborate in exploration and production activities, and share technology, research and expertise.
This comes seven months after Alberta signed a co-operation agreement with the Mexican energy ministry, in which the provincial government made a point of highlighting the vast potential the Latin American country holds for Canadian investors.
Mexico has more than 12 billion barrels of proven oil reserves and more than 14.5 trillion cubic feet of proven natural gas reserves. The Alberta government says at least 25 companies from the province are operating in Mexico in a variety of areas, including the pipeline, drilling and service, and electricity sectors.
Experts agree that agriculture and mining remain the two sectors that really define the Canada-Mexico relationship–there are more than 300 Canadian mining firms in the country.
But since Mexican President Felipe Calderon's bilateral visit to Ottawa last year as president-elect when he reiterated his commitment to energy reform, the sector has garnered special attention.
When Mr. Calderon and Prime Minister Stephen Harper spent a weekend together in Quebec in August during the Mexican president's second visit to Canada in less than a year, the two topics for discussion were climate change and energy.
"Especially with declining [oil] production that we have in Mexico," Mexican Ambassador to Canada Emilio Goicoechea said last week. "It was a big issue between them and they agreed on many, many things.
"There is something happening now," he said.
In 2004, then-prime minister Paul Martin and then-president Vicente Fox established the Canada-Mexico Partnership, which set up a number of working groups that would focus on a number of areas, and foster closer working relations between the two countries.
A working group on energy was established the following year, and some projects have begun. There is also a trilateral energy working group that includes the United States in the North America Security and Prosperity Partnership.
However, Mexico's constitution places severe restrictions on outside involvement in the country's energy sector, which has all but prevented foreign companies from paying much attention to the country–until now.
With the Mexican government using Pemex as a cash cow, taking money to pay for government programs and failing to re-invest in the company, production within the country has been steadily declining.
This has prompted a search for not only ways in which new capital can be put back in into Pemex, but also an effort to modernize the company's operations, which is where foreign companies see new potential.
At the same time, the deal between Nexen and Pemex, which is similar to agreements already in place between Pemex and other foreign companies like BP, Shell and Brazil's Petrobras, focuses on sharing expertise and technology.
"I think Canadian companies, when they saw they were unable to commercialize the oil, they said they were not going to Mexico," Mr. Goicoechea said. "But now, they're seeing there's a lot of money there, there's a lot of profits."
All of this comes at a time when energy reform is being hotly debated within the Mexican political system, which Mr. Goicoechea predicted would bring about some major changes in the near future.
"This has been debated in congress and the senate for many years," Mr. Goicoechea said. "Both commissions of energy in congress and senate are studying the way to do it. I'm sure something is going to come in the next few years.
"So I think we're in the right spot. It takes time, but we're going in the right direction right now."
Nexen vice-president Dwain Lingenfelter said his company is positioning itself to take advantage not only of the short-term opportunities, but also has its foot in the door in the event energy reform in Mexico is attained.
"Ending the monopolies in that area is a matter of time, not a question of whether it will happen or not," he said.
Mr. Lingenfelter said officials in the Canadian and Mexican governments played a major role in helping get the deal through, and he credited the Canada-Mexico Partnership, as well as the added focus afforded by the Harper and Calderon governments.
"To the credit of the new government, they have continued to build upon the Canada-Mexico relationship," he said.
Mr. Lingenfelter said agriculture and mining remain the main industries that define the Canada-Mexico relationship, but energy ties are growing in number and influence.
"Energy is a newer one, but if you look at the one that is developing the quickest, it is probably on the energy side," he said, "although there is still a lot of work that needs to be done both on the regulation and legal side in order to make it flow freely."
Olga Abizaid, a Mexico expert at FOCAL, the Canadian Foundation for the Americas, said energy has been of mutual interest to the two countries since the early part of the decade, but has taken on added importance under Messrs. Calderon and Harper.
"There is a very strong push to work on this field," she said. "Obviously the Harper government has an interest in touching energy, and this was very clear when Felipe Calderon visited Canada as president-elect."
Ms. Abizaid said there is also interest in Mexico to study different economic models that govern energy sectors in different countries, and that Canada is one of those.
"It seems to be part of Pemex's strategy, to look at the different models and learn from what has been done in different parts of the world."
However, the fact that other countries are also looking at Mexico doesn't take away from the significance of the Nexen deal, she said, given that a number of other Canadian companies, notably Alberta electricity company Transalta and oil company EnCana are already in the country.
"This is perhaps moving into a deeper relationship," she said.
Ms. Abizaid said there may be some energy reforms on the way in Mexico, "but what the nature of this reform would be, we would have to look at it. I don't foresee any openings in upstream oil."
Joseph Doucette, an energy expert at the University of Alberta, described energy reform as "a very, very touchy subject in Mexico."
That, however, may give Canada an advantage if there are openings because of the perceived threat that American firms pose.
"I think that is part of the game here, and I think it provides us with a little bit of an advantage," he said, adding that this is inevitably what Nexen and other companies are hoping for.
"Firms like Nexen obviously have a very long-term focus," he said. "They don't just think of this year or five years from now. In that sense, you want to get your foot in the door, develop good relationships, and have good and contacts in case it should develop."
Mr. Doucette said the personal relationship between Messrs. Harper and Calderon has likely helped open Mexico's doors and create an environment in the southern country that favours co-operation with Canadian companies.
"I think the rapprochement, the relationship the prime minister and president have, might help, but again help more with respect to investment in Mexico than what Canadian firms do here."
Via: embassymag.ca|By Lee Berthiaume
