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Mexico Poised to Join the North American Energy Boom


In what will likely be looked back on as a watershed moment for Mexico, Mexican President Enrique Peña Nieto unveiled his promised reforms to the country’s state-owned oil and gas monopoly yesterday, reforms that could have Mexico joining the North American energy revolution. The bill, which is expected to get the two-thirds majority it needs to pass, is both a baby step and a leap forward for Mexico.

Shrewdly, Peña isn’t going so far as to allow foreign companies to own any Mexican oil—that would be too drastic a change for a country that celebrates the day its oil was nationalized as a national holiday. Instead, the bill will amend Mexico’s constitution to allow the state to enter in to profit-sharing contracts with foreign oil firms. Oil majors would rather own the oil they’re drilling, but are eager enough to expand into a new market that they’re already giving the proposed reforms their stamp of approval.

Allowing Pemex to enter in to joint-venture projects with foreign firms adept at deep-water drilling and shale fracking could bring the beleaguered firm some much-needed technical expertise. Foreign firms were instrumental in launching the American shale boom; Mexico can benefit greatly by following suit.

Mexico has the world’s eighth-largest shale oil reserves, and the sixth-largest shale gas reserves, but Pemex, the country’s state-owned oil firm, has stagnated recently: production has fallen by a whopping 23 percent over the past nine years, despite the hiring of an additional 22,000 employees.

So why has Pemex struggled? First, the government treats the monopoly as a piggy-bank, deriving roughly a third of its annual budget from Pemex’s coffers. Second, the company is run by bureaucrats, rather than by technocrats or businessmen. Combine that with a lack of technical expertise in drilling unconventional oil and gas (which comprise roughly half of Mexico’s reserves) and you’ve got yourself into a Red Queen’s race, running faster and faster just to stay in place. Peña Nieto’s reforms are the first step toward resolving these issues.

There’s a lot more reason for optimism in Mexico than the mainstream media might lead you to believe. If Peña can pull off reforms to the country’s energy sector, as he did with its education system, Mexico can make strides toward its stated goal of becoming the “new Middle East.” An abundance of cheap domestic energy can in turn help fuel a manufacturing revival. A stronger, more unified, more energy-independent North America will be a force to be reckoned with in the 21st century.

[Image of President Nieto at 2010 WEF courtesy of Wikipedia]

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  • Jacksonian_Libertarian

    “Oil majors would rather own the oil they’re drilling, but are eager enough to expand into a new market that they’re already giving the proposed reforms their stamp of approval.”

    Mexico is going to have to pay a pretty penny if they are going to get put to the front of the line in the face of much better oil shale opportunities all over the world. Pemex is one of the worst managed and corrupt companies in the world, and any company that does business with them had better demand their money upfront and in full.

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