Mexican proposal could have profound impacts on oil & gas and electricity sectors

On 12 August the President of Mexico, Enrique Peña Nieto, announced a proposal that could reform the country’s massive energy sector and open it to private and foreign investment.

President Peña Nieto proposed to change two articles of the constitution which forbid private companies to benefit from profit-sharing contracts and to participate in the Mexican energy market.

Mexico’s energy sector has been dominated by the state-owned oil monopoly, PEMEX, since 1938, when the oil and gas sector, which at the time was dominated by foreign companies, was nationalised. 

Dr Pablo Mulás del Pozo, Secretary of WEC Mexico, said that the proposed reform would have profound impacts on the oil and gas as well as on the electricity sectors.  He said: “The upstream part of the oil and gas sector would change in that PEMEX or another government agency would be allowed to associate with other foreign or national entities to operate and share profits. In the downstream sector, allowances would be made for other entities to participate competitively with PEMEX. The structure of PEMEX would basically stay the same, although rather than having four subsidiaries, the proposal would collapse them into two internal divisions.

“On the other hand, the electrical sector’s structure would change drastically. The system operator and most of the planning activity would remain in the hands of the government and separated from the structure of CFE, the national electrical utility. The electrical system’s generation part would be open to other entities, such that the utility’s generation park would become just another independent power producer.”

However, Dr Mulás del Pozo cautioned that the proposal “would probably change” by the time it passes through the Mexican Senate and Congress, adding that the details in the corresponding secondary laws could produce further changes.  He said: “The secondary laws that detail the implementation process of the proposal’s objectives will have to be approved by the same legislative bodies.  This will take many weeks or months and it is highly probable that there will be changes.”

The President’s proposal has proven controversial within Mexico. While supporters believe the plan could revitalise Mexico’s energy sector, those who oppose it fear that this move could lead to privatisation of the sector and channelling of national oil wealth to foreign firms, according to media reports.

Mexico has among the riches oil reserves of Latin America.  According to the World Energy Council’s upcoming World Energy Resources study, Mexico has 10,025 million barrels of proved recoverable reserves of crude oil and natural gas liquids. In 2011 the country produced 2.55 million barrels, making it one of Latin America’s largest producers, along with Venezuela and Brazil.

The WEC will publish the 2013 edition of its World Energy Resources study during the World Energy Congress this October.