The future of Oil in Mexico.

In 2014, Mexico’s President Enrique Peña Nieto passed legislation and widespread reform that is changing Mexico’s oil and natural gas markets, and which ended the 75-year-old monopoly of its national oil company Petróleos Mexicanos (Pemex).

These reforms will be transformational. They will change Mexico’s economy and provide it with a modern legal framework to strengthen its energy (and other) sectors. They are transformational because the oil and gas sector is fundamental to Mexico’s economy. Pemex, currently provides the Mexican government with a significant part of its revenues and Mexico is a significant exporter of crude oil. The primary aim of the reforms in the Mexican oil and gas sector is to reverse the decline in Mexican oil and gas production and stimulate economic growth generally.

  • Pemex will become more independent of the state and internal reform of Pemex will be carried out.
  • Pemex’s monopoly on retail gasoline and diesel sales will end in 2016
  • Oil companies operating in Mexico will pay royalties and taxes varying with the price of oil
  • Oil companies must respect national content requirements of 25% in 2015, rising to 35% in 2025
  • Oil companies may not expropriate land from communities for exploration and development, but rather temporarily occupy land and compensate its owners
  • The National Hydrocarbons Commission (CNH) is strengthened and established as a constitutionally coordinated entity to gather and manage information on the energy sector; can issue regulations and monitor compliance; and will manage the bidding rounds, award contracts, and supervise those contracts

 

The fall in global oil prices over the past year, has however, affected Mexico’s economy and is making the success of its energy reforms even more important. Sustained lower oil prices are stressful for producing countries like Mexico (despite its well-known hedging programme) which rely on energy-related revenues not only to support its economy but for broader educational and social-welfare programs.

For example, the oil price decline has caused the value of Mexico’s currency, the Peso, to depreciate. Mexico’s exports have seen uneven in 2015 and output generally remains weak, new manufacturing orders are falling and the price of imports is increasing due to the fall in the Peso. This situation is now adding impetus to the implementation of the energy sector reforms.

Longer term, the impact of Mexico’s reforms will be significant for the country’s economic growth; higher oil and gas production and greater investment in the energy sector will in turn generate both direct and indirect effects on other industries in Mexico (even under lower oil prices). This effect, combined with recent initiatives like creating new special economic zones in Mexico’s poorer southern states, are expected to add billions to Mexico’s GDP over the next decade.

Mexico’s energy reforms will also be strengthened by enablers such as new technology, the development of local independent oil companies and focus on developing more in-depth skills, all which can facilitate their success. The country is already well into its journey to a bigger and brighter future and a new Mexico.

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Luiz Carlos Ferezin. (2016). MEXICO—THE TRANSFORMATION OF ONE OF THE WORLD’S MOST PROMISING OIL AND GAS SECTORS. Retrieved from https://www.accenture.com/us-en/insight-highlights-energy-mexico-the-transformation

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