Photo credit: Oil Pump Jack by Paul Lowry
Mexico could very well see an oil boom in the very near future; the country has posted oil gains for the second year in a row and the current government is seriously proposing reforms in its exclusively state-owned hydrocarbons industry.
Mexican President Enrique Peña Nieto, who recently celebrated the 75th anniversary of the state-owned Petróleos Mexicanos (PEMEX), marked the occasion by announcing that the country’s oil reserves had increased by 0.4 per cent over the previous year, up to 13.86 billion barrels. Last year’s increase was only 0.1 percent, but the year’s increase was the first year of growth in more than a decade.
Mexico’s hydrocarbons industry was nationalized in 1938, and while output expanded by an average of 6% per year until 1971, a gap between demand and production has been increasingly steadily. Peak production occurred in 2004, and in the following years, production dropped around 25 percent. According to U.S. Energy Department’s Energy Information Administration, the decline was due to natural maturation. The fact that reserves have increased is very good news for PEMEX; because of legal constraints in the country’s constitution, foreign investment has been, until now, not allowed and PEMEX is the body responsible for reversing declines in both the reserves and production.
The increase in reserves is due to the PEMEX discovery of oil in a deep-water field in the Gulf of Mexico; further discoveries were made in the state of Tabasco.
Mexico could be on its way to an oil boom; along with the increase in reserves, the current governing party of Mexico, the Institutional Revolutionary Party (PRI) has been aggressively proposing reforms in its hydrocarbons sector. While it will keep PEMEX as a state-owned company which will continue to enjoy a monopoly, the government will allow foreign investment, participation and limited partnerships if the reforms are approved. The only caveat is that the oil will remain in Mexican hands. While this may not be ideal for many foreign oil companies, it is far more than what has been offered before, which was nothing at all. Several companies will be eager for the chance to access Mexico’s vast oil reserves, even if it means they will only be working in a consulting role to help Mexico modernize its antiquated oil infrastructure.
One deal which got quick approval in the Mexican Senate was the Transboundary Hydrocarbons Agreement; the deal will allow joint oil exploration in the Gulf of Mexico. Experts in the energy sectors of both countries state that if the U.S. acts quickly, American companies will have a head start over other foreign companies in accessing Mexico’s oil. If the deal is not acted upon by the summer of this year, Mexico could likely renege on the deal due to public disapproval, again shutting its energy industry off from much-needed investment.
Mexico has a “gold mine” in oil; reserves are on the rise, but the country needs help with equipment modernization and extraction technology for a true “boom” to occur. Industry reforms could cause foreign capital to pour in; companies that are willing to share information and act in a consulting role rather than ownership role will find that plenty of profitable opportunities will exist.