OREANDA-NEWS. November 10, 2015. “Reform” is one of those words that means anything you want it to mean. It’s been deployed in so many political fights, it has really lost its meaning in most contexts. I suppose some people still say a teen car thief is sent off to “reform school,” but I doubt it.

Here in Mexico City, that word is loaded. I’m writing this 12 floors up from the Paseo de la Reforma, the grand boulevard named for the civil war between liberals and conservatives here in the 1850s and 1860s.

“Reform” today in Mexico means the multi-billion dollar undertaking by the government in education, telecommunications, labor and, most importantly to me, energy. Like anyone trying to get anywhere through traffic in the capital, the makeover is running late. Right now it’s about a year late.

Traffic circle outside the Mexico City energy conference. Investors will need the craftiness of Diana (the goddess of the hunt and the fountain statue) to stalk opportunities in a newly deregulated market.

I got the update on how reform is going this week both from oil executives in the capital and at a Platts conference, Mexican Energy: Energy Reform for Electricity, Oil and Gas — Fueling Economic Growth, held at the St. Regis Hotel.

My education started on the plane. I met a few Gazprom executives who were flying in to explore opportunities in natural gas. It’s no secret that European and North American players are leaving footprints in Mexico as government control of hydrocarbons is loosened.

“We have vast resources in our subsoil. There will be great opportunities,” Mario Gabriel Budebo, chief executive officer of a new fund investing in Mexico, said Friday at the Platts conference through a translator.

Budebo leads EXI, a fund that is part of Mexico Infrastructure Partners, and until 2012 was undersecretary for energy in Mexico. He told a crowd of about 75 people that national oil company Pemex is now required to partner with outsiders in oil ventures. Its budget has been trimmed from \\$26.7 billion in 2014 to an expected \\$17.9 billion in 2016.

Pemex has been hurt by an unfavorable exchange rate for the peso and sagging crude. At the same time, demand for diesel and gasoline in Mexico is outstripping what Pemex can produce. In June, Mexico for the first time had a shortfall of about 100,000 b/d in gasoline and diesel, and it’s remained in deficit since.

That has Mexico looking to the open market. I learned outside the conference that Mexico oil regulators soon will announce regional pricing for diesel and gasoline as differentials to Platts US assessments. The news is expected to break before the end of November.

“Within two to three years, we hope to have a pricing system that will transmit the right signs and signals,” Budebo said through a translator.

Conference emcee Raul Carral, business development manager for electricity company W?rtsil? North America, said at the conference that spot market scenarios for Mexico energy are being tested and could be put through a dry run on New Year’s Eve and put to use as soon as January 1. (W?rtsil? is part of the Finnish energy giant with the same name.)

“We need to have in place a flexible system to create markets that can ensure that energy is available to all,” Carral said through a translator.

I also learned outside the conference that Pemex sometime toward the start of 2017 will begin buying naphtha and other blendstocks and feedstocks from sources not limited to PMI, the trading arm of Pemex. Pemex is exploring US pricing and specifications for naphtha, which is exported off the Gulf Coast not only to Mexico but also to Colombia, Ecuador and other Latin American countries.

The move could open Mexico further to the half-dozen trading houses that move naphtha out of Houston, and possibly to US refiners. Hurdles will spring up. For example, the widely traded “cactus naphtha” in Mexico is regarded to have an API around 67. Platts assesses standard naphtha at 63 API. The Platts assesssment is for standard naphtha that boils at 110 degrees Fahrenheit. Pemex buys naphtha that boils at 113 degrees Fahrenheit.

The diablo will be in the details in the bid to get naphtha to the Mexican ports. Pemex has been depending on PMI for information about US naphtha and is likely to attempt to broaden that input.

The word “reform” implies there is a problem to be solved, but EXI’s Budebo said there is reason to be optimistic. For one, Mexico has trailed countries such as Norway in depleting oil reserves. In 100 years of Mexican oil production, it has only removed about one-fourth of reserves, Budebo said. EXI estimates that Mexico ranks 10th among world companies in reserves, with Russia first.

It should be fun times in Mexico energy in the next five years or so, and fascinating to see what turns up.

Now about that traffic. I can see why demand for on-road fuels is up, as cited by Budebo in Friday’s presentation. There are a lot of cars idling out there on the street.