Mexico's Energy Reform Drawing Interest in Texas

The Mexican ruling party's recent decision to adopt a platform that could open up the country's giant oil monopoly to private investment has caught the attention of some industry gurus in Texas, who say the move bodes well for U.S. business interests.

The Institutional Revolutionary Party, or PRI, remains adamant that the state-owned company, Petróleos Mexicanos, or PEMEX, will stay under state control. But the proposal, which requires legislative approval, could mean more oil is exported from Mexico to the U.S., and that Mexico might turn to Americans for guidance on how to increase production there. 

“Any time you allow the private sector more free rein, you see more business,” said WorldCity president Ken Roberts. “There are examples where too much of a laissez faire attitude can run amok. But generally speaking, when the private sector gets involved, it tends to always look for a way to do more business.”

The U.S. and Mexico traded about $494 billion in goods in 2012, with more than $229 billion passing through the Laredo customs district and an additional $86 billion through the El Paso customs district, according to WorldCity, a Florida-based company that uses U.S. census data to track trade patterns. Overall refined and crude oil amounted to more than $57 billion in two-way trade.

Roberts said oil imports from Mexico have more than tripled in value over the last decade, peaking in 2011 at $37.15 billion. He said that despite America’s continued effort to find new sources of energy, he didn’t see oil production worldwide declining soon.

 

“As the U.S. continues to become extremely successful in fracking, and if there’s successes in nontraditional means of powering our vehicles, there are all sorts of factors that can change that,” he said. “But I think there’s going to be a need for lots and lots of oil for years and years to come.”

Analysts say, however, that interested entities should view the proposal cautiously. Energy reform was one of the hallmarks of Mexican President Enrique Peña Nieto’s campaign last year, when he successfully propelled the PRI back to the capital after 12 years out of power.

Duncan Wood, the director of the Mexico Institute at the Woodrow Wilson International Center for Scholars, said the effects of such a proposal, however, remain unclear.

“They are talking seriously about allowing private investment in the oil sector in general, [but] they want the state to retain control. So what that actually means in reality is very tough to work out,” he said. “Because retaining control could be legislative, regulatory; it could be the dominant player. No one is quite sure what that means.”

Wood added that Peña Nieto’s administration would like to put forth additional reforms, and that those could affect the political climate leading up to the PEMEX negotiations.

“The PRI is fully aware that it needs to maintain a broad popular support for its agenda, and if it’s going to engage in fiscal reform, where they are talking about adding value added tax on food and medicine, that’s going to be hugely unpopular,” he said. “If they also begin talking about opening up the oil sector, then that’s possible that will cause a reaction from the base as well. And the political party that is best placed to take advantage of that is the left-wing [Party of the Democratic Revolution]. That could cease upon an upswell of popular rejection of an opening of the sector.”

Foreign companies are very likely to express interest, Wood said, but he doesn't predict an instant influx.

“It’s not as in we’re going to see a flood of companies in to Mexico immediately," he said. "They are going to sit back and analyze and make sure the conditions are right."

 

But Texas companies have already expressed interest, highlighting their expertise in drilling and offshore production.

The South Texas Energy and Economic Roundtable, or STEER, a coalition of exploration companies currently drilling in the Eagle Ford Shale that will officially launch next week, said private investment would bolster trade between the U.S. and Mexico.

“A reform of Mexico’s energy sector has the potential to have a significant impact on the entire United States, particularly in the oil and gas region in South Texas that already enjoys strong ties with Mexico and has experienced unprecedented industry growth, enhanced modernization and technological advancements,” said STEER president Omar Garcia.

Those technological advancements will be a key factor for many U.S. interests, said Scott Miller, a senior adviser at the Center for Strategic and International Studies. Despite having proven oil reserves, PEMEX has under-produced, he said.

“The capability is there, but what they need is better technology and better access to some of the more modern techniques, and this is where U.S. energy services companies — many of them located in and around Houston — would, I think, find a major business opportunity,” he said. “It’s something that oil and energy development around the world tends to benefit handsomely from U.S. know-how and U.S. technology.”

Miller added that “state control” of a resource is not something to necessarily be wary of. The largest private owner of energy reserves, Exxon Mobil, owns only 2 percent of the world’s share.

“Most oil resources or energy resources are in government hands, either state-owned enterprises or state-controlled enterprises,” he said. “All of Russia, all of Venezuela and Petrobras [in Brazil] and most of the Middle East. So it’s not unusual to have that. It’s really how they structure it and what access is providing for oil services. But any opening of any sort will be looked at as an important opportunity.”

But no matter how successful the measure proves, Wood said, complete privatization is unlikely.

"It’s not a credible proposition, just simply because that would go way too far," he said. "Mexicans would react very badly to that. They don’t want to see the Mexican oil company privatized."

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