Mexican Congress Approves Energy Reform; US Companies Likely To Benefit

By Lorne Matalon
December 13, 2013

United States energy companies are anticipating an estimated $20 billion investment opportunity analysts say will be a result of the end to the 75-year state oil monopoly in Mexico.

Mexico's Congress gave formal approval to a bill on Thursday that is seen as that country's most significant economic reform package since the signing of the North American Free Trade Agreement — NAFTA — 20 years ago.

When President Enrique Peña Nieto came to the bordertown of Ojinaga, Chihuahua on Thanksgiving Day, he told his audience that opening up oil exploration and extraction to foreign contractors would transform Petroleos Mexicanos, an inefficient, often corrupt institution that has for decades wielded enormous political power.

Past Mexican presidents, notably Carlos Salinas de Gortari have made only cosmetic attempts to reign in the union and increase efficiency.

Left-wing politicians and many Mexicans oppose opening up the oil market in Mexico.
They believe Mexico is handing a critical natural resources to foreigners.
Since Lázaro Cárdenas nationalized Mexico's oil production in 1938, oil has been a touchstone for nationalists who claim the industry can never be controlled by outsiders.

Revenue and production are falling for Petroleos Mexicanos. But it still contributes approximately one third of the Mexican federal government's tax revenue.
The income allows the Mexican government to inject money into social programs and infrastructure.

Peña Nieto is spending enormous political capital as he leads an unprecedented, hitherto unthinkable reform.

He argues that foreign companies will only be contractors, that ultimate control of Mexico's oil will remain in Mexican hands. And he says foreign investment will constitute an economic windfall while technology brought in by those companies will rescue a declining asset.

Los Angeles Times journalists Richard Fausset and Tracy Wilkinson report today:
"At the rate that Mexico's oil production has been declining, it stands to become a net importer of oil in a decade. Currently, the country ships more than a million barrels of crude a day to the United States but has to import gasoline because it doesn't have the capacity to refine sufficient quantities to meet domestic demand."
 
The proposal must be ratified by state assemblies. That is not expected to be an obstacle for the reform side.

The majority of Mexico's state legislatures are controlled by the ruling party PRI-led alliance pushing the package reform.

Again from the Los Angeles Times:

"At the rate that Mexico's oil production has been declining, it stands to become a net importer of oil in a decade. Currently, the country ships more than a million barrels of crude a day to the United States but has to import gasoline because it doesn't have the capacity to refine sufficient quantities to meet domestic demand."