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Mexico Prepares to Join Great North American Energy Boom

A high profile announcement by Mexico’s newly inaugurated president has put energy reform on the front burner. In an interview with the Financial Times, Mr. Enrique Peña Nieto outlined the historic reforms he intends to push for Mexico’s energy sector:

Mr Pena Nieto said the reform proposal could be sent to congress in the first half of 2013, and approved before the end of the year. “It is about giving space so that the private sector participates with the idea of strengthening the capacity of the Mexican state,” he said.

The constitutional reform could prove controversial in Mexico, where every year school children celebrate the 1938 decision to nationalise an industry that continues to supply a third of government revenue. But the former state governor needs to address Pemex’s problem of shrinking output, which has fallen by around a quarter since 2004 to about 2.6m barrels a day. [ . . . ]

Mr Peña Nieto declined to give more details about the proposal and stressed he was not contemplating privatisation, but said: “I am in favour of a constitutional reform, that’s my intention, above all to give greater certainty and legal security to this proposition of truly favouring private-sector participation.”

It’s vital for Mexico to shake up its energy industry. Pemex has watched production decline despite Mexico’s huge deep-water reserves in the Gulf of Mexico. What’s more, the potential for a shale gas and oil boom similar to those reshaping Canada and the U.S. is real: Mexico appears to have access to areas with the geological characteristics of large shale oil reserves and is believed to be one of the world’s five richest countries in shale gas.

State-owned Pemex can’t mine this treasure by itself, and it needs more than just technology transfers from abroad. Mexico needs to develop a large entrepreneurial energy industry of its own.

The U.S. is already blessed with the protection of vast oceans to its east and west, and a prosperous and peaceful neighbor to its north. A vibrant energy sector and booming economy in Mexico, affecting everything from immigration to the war on drugs, would be no small boon.

The North American energy miracle rolls on.

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