As things currently stand, Mexico’s energy fortunes look grim. The graph above, sourced from the Energy Information Administration’s International Energy Statistics, shows a remarkable decline in Mexican oil production over the past decade under the control of Pemex, the country’s state-owned oil firm. Pemex has been running the Red Queen’s race, expending more energy and effort (having hired some 22,000 additional employees since 2004) just to try and maintain production levels. The days of a state-run monopoly controlling Mexico’s oil reserves are coming to a close, however, as President Enrique Peña Nieto recently signed off on a raft of reforms that will invite private competition in an attempt to reinvigorate oil and gas production. The EIA reports:
On August 11, Mexico’s president signed into law legislation that will open its oil and natural gas markets to foreign direct investment, effectively ending the 75-year-old monopoly of state-owned Petróleos Mexicanos (Pemex). These laws, which follow previously adopted changes in Mexico’s constitution to eliminate provisions that prohibited direct foreign investment in that nation’s oil and natural gas sector, are likely to have major implications for the future of Mexico’s oil production profile. As a result of the developments in Mexico over the past year, EIA has revised its expectations for long-term growth in Mexico’s oil production.Although there are many complexities to the new reform and many details that still must be settled before the reforms can take effect, reform is expected to improve the long-term outlook for growth in Mexico’s petroleum and other liquids production. Analysis in EIA’s upcoming International Energy Outlook 2014 (IEO2014) will include the potential effects on upstream oil exploration and production and the potential for foreign participation.
The EIA’s outlook for Mexican production has changed considerably with the announcement of these reforms, as the following graph indicates:
Foreign firms can tap unconventional and offshore reserves more effectively than Pemex, and that will provide Mexico a leg-up to joining in on the North American energy boom. A number of hurdles remain to be cleared for our southern neighbor, but its future is looking brighter than ever, and that’s something worth cheering.