Congress could undercut US-Mexico joint drilling deal in Gulf

A US-Mexico deal to divvy up energy in the Gulf of Mexico offers mutual economic benefits between close allies and neighbors. But Congress can't agree on the language to implement the pact – and time is running out.

By , Staff writer

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    A truck drives past a refinery in Salamanca, Mexico, 170 miles northwest of Mexico City. Mexican oil output is dwindling, and many say the company needs outside funds and technology to offset declines with resources farther afield.
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US and Mexican efforts to jointly develop offshore oil and gas fields along their maritime border in the Gulf of Mexico are being held up by a dispute in Congress. 

For Mexico, those efforts represent an opportunity to acquire the technology and investment it needs to develop hard-to-reach regions. Encapsulated in a 2012 agreement signed by both nations and ratified by Mexico, the push comes as Mexican President Enrique Peña Nieto pushes for reforms that would open up the country's state-owned oil company to foreign investment. 

For the US, the agreement – not yet ratified by Congress – promises an economic boost. It bolsters a growing North American energy largesse that stretches from Canada's oil sands through shale plays in the US and down to deepwater reserves in the Gulf of Mexico.

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There's just one holdup. Congress hasn't ratified the pact – the US-Mexico Transboundary Hydrocarbons Agreement – because the House and Senate disagree on whether oil and gas producers should be required to publicly disclose their payments to foreign governments. On Tuesday, the Senate Energy and Natural Resources Committee held a meeting to try to move forward on the agreement. 

"It is the hope that, through this Agreement and the proposed energy reforms in Mexico, that the energy revolution the U.S. is currently experiencing can extend throughout the Western Hemisphere," Sen. Ron Wyden (D) of Oregon said in a statement prepared for the Senate committee hearing. "This would make our region more competitive and less reliant on politically tumultuous states for obtaining energy." 

For decades, the two countries have negotiated over how to divvy up resources along the US-Mexico maritime border and in areas between the two economic zones. In 2000, a moratorium was placed on drilling in the region to allow time to develop a coordinated plan.

As the decade wore on, exploration on the US side moved farther and farther offshore, toward the maritime border. Concern grew in Mexico that rigs on the US side could start siphoning oil from the Mexico side – the "efecto popote," or, "straw effect." Meanwhile, energy companies felt hindered by the legal uncertainties of tapping reservoirs that straddle the border. 

"The motive for the US is 'We’re ready to drill, but we don't want to drill ourselves into a legal nightmare,'" said George Baker, publisher of Mexico Energy Intelligence, an industry newsletter based in Houston. "For Mexico, it’s 'We want to make certain our oil rights are protected so that if they start drilling on the US side – and discover crossborder oil – we have architecture in place to protects our interests." 

The 2012 hydrocarbons agreement sought to alleviate those issues. It lifts a moratorium on drilling in the region and provides a legal framework for jointly developing the projected 172 million barrels of oil and 304 billion cubic feet of natural gas in the region. 

Mexico almost immediately ratified the Transboundary Hydrocarbons Agreement, but it has languished in Congress because the House-passed version exempts oil and gas companies from publicly disclosing their payments to foreign governments.

The 2010 BP oil spill has also cast a shadow on the agreement, which would facilitate an expansion of "deepwater drilling" in the Gulf of Mexico. Environmental groups say the industry hasn't learned its lessons from the explosion that killed 11 people and spilled as much as 4.2 million barrels of oil into the Gulf of Mexico.   

"[O]ur continued emphasis on expanding offshore drilling is slowing the necessary investment in clean energy projects that will stimulate the economy without the attendant risks, and help to alleviate the worst impacts of climate change," Jacqueline Savitz, vice president for US oceans at the ocean conservation organization Oceana, said in prepared testimony for Tuesday's hearing.  

In one sense, the agreement might positively impact environmental stewardship in the Gulf by harmonizing regulations between the two sides, according to Duncan Wood, director of the Mexico Institute at the Woodrow Wilson International Center for Scholars, a think tank in Washington.

"The Mexican regulator now has to meet the same environmental standards that exist on US side," Mr. Wood says in a telephone interview. "It's a very important issue because [Petróleos Mexicanos, Mexico's state-run oil company] itself does not have the best safety record."

If the agreement moves forward, it will be a test for Mexican President Peña Nieto's plan to open up the state-run company to foreign investment. Mexican oil output is dwindling, and many say the company needs outside funds and technology to offset declines with resources farther afield. But his critics in Mexico fear that relinquishing decades-old state control of an important industry is tantamount to losing an element of sovereignty.  

If Congress doesn't ratify the agreement by Jan. 17, 2014, then the moratorium on energy development expires with no agreement on divvying up those resources. Without such an agreement, neither side is likely to drill for oil and gas in the border region.

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