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Mexico's President Proposes More Private Energy Investment

In a nation where citizens' national identity is tied to the state-owned oil and natural gas industry, and past high-profile efforts to inject more global private-sector investment have withered, Mexican President Enrique Pena Nieto on Monday proposed opening the nation to more shared private-sector energy investment.

While Pena Nieto's two most recent predecessors tried unsuccessfully to reform Petroleos Mexicanos (Pemex), the state-owned oil/gas company, the newest Mexican leader took strides on Monday, but stopped short of proposing to allow private energy companies drilling in his country to own and market the oil they produce.

But he did propose constitutional changes that would allow for what were described as a risk- and profit-sharing partnership between foreign firms and Pemex. Energy observers see the move as an attempt to attract the capital and technology Mexico needs to more fully capture the benefits of its challenging deepwater Gulf of Mexico (GOM) resources and shale oilfields, which are viewed as equally difficult to produce.

The move by the new Mexican president comes at a time when activity between U.S. and Canadian oil/gas companies and Mexican energy officials has never been higher, particularly in the areas of building natural gas infrastructure and exports, along with looking at deep-lying offshore GOM resources (see Daily GPIMarch 15).

Exports of U.S. gas to Mexico set a record last year, according to the Energy Information Administration (EIA), growing by 24% to 1.69 Bcf/d. Imports now account for more than 30% of Mexico's gas supply, and the country's gas usage is at its highest level ever, EIA said (see Daily GPIMarch 14).

In the past year, studies have examined the potential for North America to become a global energy leader, and much of the analysis has focused on the need for Mexico to open its energy markets (see Daily GPIDec. 4, 2012).

Weary of left-leaning elected officials in Mexico's Congress and elsewhere who are ready to keep Pemex a state-owned enterprise at all costs, Pena Nieto did not give any details of how his proposed Pemex-private sector partnerships would develop, but he did make it clear that the state-run oil/gas operations would not be "sold or privatized."

Within Mexico the political road to winning the constitutional amendment outlined by Pena Nieto looks very difficult, although initial assessments indicate that both houses of Mexico's Congress are expected to pass the measure. The difficulty grows considerably after that in seeking to get at least 17 of 32 state and federal district legislatures to ratify the change.

Jump-starting Mexico's economy is an obvious driver behind the proposal, U.S. news organizations have been reporting. Mexican officials indicated demand for energy in the country is growing so fast that Mexico could turn from an energy exporter to an energy importer by 2020, according to a New York Times report on the Mexican president's speech Monday to a carefully selected audience in Los Pinos, the Mexican White House.

Mexico now imports almost half of its gasoline, mostly from the United States. Mexican companies pay 25% more for electricity than competitors in other countries, the government has calculated. Although Mexico potentially has some of the world's largest reserves of shale gas, it imports about one-third of its natural gas and is making moves to increase the imports substantially (see Daily GPIMarch 14).

Reports out of Mexico City cited recent public opinion polls in Mexico that indicate up to 65% of the population is against the proposed constitutional changes, and Mexican political analysts compare Mexicans' attachment to Pemex to Americans' love of apple pie.

Going back 13 years to 2000 when the businessman Vicente Fox was the president-elect, the political and economic assumption on the U.S. side of the Mexican border was that the nation's energy sector would finally be privatized in response to high domestic energy prices that were crushing Mexican-based businesses (see Daily GPINov. 7, 2000).

Fox's energy minister and the man who would succeed him in the presidency, Felipe Calderon, also vowed to reform the nation's energy sector when he came into office after presiding over Pemex's first multiple service contract (MSC) bids in late 2003 as the top government energy official in Fox's administration (seeDaily GPIJan. 29, 2008).

Like Pena Nieto, Calderon sought the changes while promising that Pemex would "always continue to belong to all Mexicans." He wanted to eliminate widespread corruption and upgrade the Pemex infrastructure as a means of meeting a national goal of replacing 100% of Mexico's reserves through legislative changes.

 Mexicans regularly celebrate as "oil expropriation day" March 18, 1938, the date that then-President Lazaro Cardenas kicked out foreign oil companies and nationalized the oil/gas industry with the creation of Pemex.

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