Mexico’s Energy Reform: Implications
The world has heard about Mexico’s historic reforms regarding energy legislation. President Peña Nieto’s ability to unite Mexico and pass the reform this past December will be touted by historians as prolific, and may be a keystone moment for the Mexican leader. This reform will change the landscape of the energy industry, as well as US-Mexico relations.
Mexico ended Petróleos Mexicanos’ (Pemex); the state-owned oil company; 75-year oil monopoly, and now plans to privatize its energy market. This will allow for private investment, partnerships, licensing, etc. for the first time since 1938.
The reformation was sparked by the need to better utilize Mexico’s oil reserves, which have been squandered through inefficiency and lack of competition. This simply could not endure, as the oil industry has come to be roughly 1/3 of Mexico’s revenue. With such a heavy percentage of national revenue, any increase in efficiency will result in an increase in the public sector, such as infrastructure, education, law enforcement, and research. Opening up the energy industry is also projected to substantially increase Mexican GDP and create thousands of jobs for Mexicans.
HOW DOES THIS BENEFIT THE USA?
Short answer: Access to sizeable deposits of shale beds and deep-water caches of energy; as well as investment opportunities for American companies dealing in oil and infrastructure.
American firms will have a distinct advantage in working these newly open reserves, they have years of experience working other parts of the Gulf of Mexico. Hand-in-hand with America’s close relationship with Mexico, this expertise will help boost America to be the frontrunner when it comes to bidding.
By having access to these oil reserves, America can also decrease its dependence on Middle Eastern oil. It will have a backyard neighbor that it can call on, rather than relying on OPEC.
Indirect results exist as well, such as an increased level of cohesion and friendliness between the neighboring sovereigns. We will see more of the projected benefits from NAFTA, through oil partnerships and direct investment. Illegal immigration, which is already on the decrease, will continue to shift downward as more jobs are created across our Southern border. This will help our security efforts, as it will be more manageable with fewer people crossing the border into the US.
WHERE DO WE GO FROM HERE?
As great as it is to have a reformation passed on such a paramount legislation, there are steps that need to be made to ensure Mexico’s oil industry transitions smoothly, and standards and regulations need to be set. In a word: bureaucracy.
Another piece of legislation needs to be passed in April, and Mexico still needs to pick which areas are open for foreign investment and which will remain in Pemex’s hands. As regulations and standards are set, there will also need to be people trained to oversee their enforcement. As such, it has been projected that bidding will commence sometime in late 2015. American oil companies have waited 75 years for this access, so what is a few more months?
The more Mexico advances and more prosperous it becomes, the better America will view it as a reliable, profitable trading partner. Free trade always excels with fewer barriers, and the wall that surrounded Mexican oil for 75 years is finally starting to be chipped away.