McALLEN, September 28 - The South Texas border region can reap a “real bonanza” from the deregulation of Mexico’s energy sector, says former Enron Mexico President Max Yzaguirre.
Yzaguirre cited startling numbers from a BBVA Research report published earlier this year when he gave the keynote speech at South Texas College’s Inno’ 2014 binational innovation conference. The event was held at STC’s technology campus in south McAllen on Friday.
“From a macro perspective, according to a January report from BBVA Research, as Mexico continues to open its energy sector, the new investments could mean a real bonanza for border towns on both sides. The border area could attract as much as much as $1.2 trillion in economic activity in the next decade,” Yzaguirre said.
“Here in Texas we can see 200,000 jobs being created, almost three and a half billion dollars in state revenues and a $45 billion boost to GDP.”
Yzaguirre is president and CEO of The Yzaguirre Group, an Austin, Texas-based business and public affairs advisory firm. An attorney, Yzaguirre has 28 years of leadership experience in domestic and international business, government and law and was president of Enron’s Mexico operations. He is also a former chairman of the Public Utility Commission of Texas.
Prior to founding The Yzaguirre Group, Yzaguirre served in various capacities for the group of companies headed by Ray L. Hunt of Dallas, Texas. His primary role was serving as president of Hunt-Mexico, Inc., an investor in energy, real estate and private equity opportunities, and as President of Hunt Resources, Inc., an investor in energy production and transportation opportunities.
Yzaguirre said one of BBVA Research’s economists had stated that investment in the Burgos Basin in northeastern Mexico, along with increased pipeline development and improvements to the electric grid, “could really transform border cities in Texas and Mexico by bringing millions of jobs in ancillary businesses.” BBVA Research said that faster economic growth in the border region will “narrow the socio-economic disparities that existed between Texas' border cities and the big metro areas of Dallas, Houston, Austin, etc.”
Yzaguirre said he “loved” one thing the BBVA Research reported said. “If border towns effectively seize this opportunity, the U.S.-Mexican border could see one of the most dramatic transformations in its history.”
From a regional perspective the benefits of Mexico's energy reform could be significant because of the multiplier effect, Yzaguirre said. “Studies have indicated that, at least in the U.S., every one job created in unconventional oil and gas supports four indirect jobs.” He cited the example of the Blackstone Group, a New York-based merchant bank, which is planning to sell power from its Frontera power plant in Mission, Texas, into Mexico. He said Blackstone would be “taking it offline from the Texas grid and pointing it south. It is a 524 megawatt natural gas fired plant and in its regulatory filings, its owners have eyes on Mexican market and trying to anticipate the (energy) reform,” Yzaguirre said.
In addition to speaking at the STC conference, Yzaguirre testified at a Texas House hearing at the Edinburg Conference Center at Renaissance on Friday. The hearing was hosted jointly by the Energy Resources and the International Trade & Intergovernmental Affairs committees. Yzaguirre had a similar message for the STC conference and the House hearing. He said Mexico’s energy reforms will mean a lot to Texas and in particular South Texas.
“I think South Texas is well positioned to be the launching pad for U.S. and maybe even international companies that want to do business in the energy sector in Mexico. Texas-based companies that have been active in Eagle Ford in particular, I think can do very well, as a result of Mexico's energy reform,” Yzaguirre said. “Companies with experience in Eagle Ford have competitive advantages and could end up I think leading the shale revolution in Mexico. Those companies know how to extract from shale, they have got the technology but also they understand the business and social culture in Mexico.”
Yzaguirre then commended STC for signing a Memorandum of Understanding with Universidad Tecnológica de Gutérrez Zamora in Veracruz. The plan is for STC to train students from UTGZ for careers in the oil and gas industry. He noted that STC could even become part of President Peña Nieto’s proposed National Petroleum University.
Yzaguirre said that beyond the opportunities of direct investment in energy production and supply, there will also be “plenty” of indirect opportunities as well. “Although the electric market in Mexico is more advanced currently in terms of private investment than the oil and gas market, primarily due to the private investment in the independent power producers, or IPPs, which have really created the necessary ecosystem for equipment repair, maintenance, that sort of thing, the absence of that ecosystem in the oil and gas base is just another area of opportunity that results from the Mexican energy reform,” Yzaguirre said.
“Certainly, some of the big gorillas, like Halliburton and Baker Hughes have been active in Mexico in providing services to Pemex but I think there is going to be a need for many oil and gas related services for independent operators. Those services are going to include the whole smörgåsbord of oil field service, 3D seismic mapping, surveying, supplying water, sand, mud, the things you normally need to do in oil field.”
Yzaguirre said he did not think it would be a stretch to believe a number of those service providers might prefer to establish a regional office on this side of the border, in this area, because “then they could swing both ways and play in Eagle Ford and Mexico, which should be very attractive to them.” He said believes there will also be “significant need” for non-energy investment in Mexico's energy regions and that should create a number of opportunities for non-energy businesses.
“The increased investment activity in Mexico's energy sector I think should create huge demand for infrastructure in transportation, housing and dining. Many parts of Burgos are desolate and undeveloped. It is a generalization, and those are always dangerous, but, you have got development along the border and then Monterrey and Saltillo, but in the middle, not much development, unlike Eagle Ford Shale. Burgos is going to need roads, worker housing, whether that is hotels, dorms, trailers, whatever it might be. Worker transport, including security, grocery stores, restaurants, places people eat; medical facilities, educational facilities,” Yzaguirre said.
Yzaguirre concluded his 45-minute speech by saying the time to act is now.
“Because the reforms are new, it is very challenging to get real time information in Mexico and to network effectively, but that said I think the time to move on those opportunities is now. Because, if you wait five years for everything to be crystal clear, the first movers are going to have a huge head start. I think there will be opportunities for a long time. I am not implying that the opportunities are short term. But, if you are thinking about jumping in in the tort term, again, my advice is to move quickly because the first movers will benefit greatly.”