Energy Reform in Mexico: Next Step for the North American Energy Colossus?

Few think of Mexico in the same terms as Saudi Arabia, despite the fact that Mexico has similar quantities of hydrocarbon resources. That it is not seen this way reflects, in large measure, the decade-long decline in Mexico’s oil and gas production, as overseen by the state-owned oil monopoly Petróleos Mexicanos (Pemex).

Yet Mexico’s picture is about to change dramatically. The groundwork has now been laid for radical political and regulatory reform that can unlock the nation’s vast hydrocarbon wealth. The reform is among the signature acts early in the six-year term of President Enrique Peña Nieto.

Reforms already enacted and others pending allow, for the first time since the 1930s, private and foreign investment in Mexico’s oil and gas fields. This is intended to lead to an influx of both capital and technology that will boost domestic production, thus not only revitalizing Mexico’s economy, but also setting the stage for a North America—the United States, Canada, and Mexico—as a rival to the Middle East and Russia in world energy markets. This outcome is not, however, inevitable. But while numerous observers weigh-in with cautionary observations, we consider here the factors which suggest that future progress could be as surprising, and fast, as has just occurred.

This paper briefly reviews recent events and the state of affairs in Mexico, as well as the implications of expanded Mexican oil and gas production for Mexico’s economy, North America, and the world. Finally, it offers a few proposals that could accelerate and maximize the benefits from Mexico’s rise to becoming, again, a bigger player in oil and gas.

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