Mexico to open up energy sector to private players

This move will end the state’s 75-year-old monopoly on the oil and gas industry.

New Statesman
Mexican President Enrique Pena Nieto (C) showing the bill of constitutional reform. Credit: Getty Images.

The Mexican President Enrique Pena Nieto has announced plans to open up the country’s oil and gas industry to private sector, a move that would end the state’s 75-year-old monopoly on the energy sector and enable investors to pump in billions of dollars to tap the huge reserves.

On Monday, the President unveiled a bill to make changes in the Constitution’s article 27 and 28 in order to let private investors into the sector.

This is seen as a major energy overhaul since the approval of the North American Free Trade Agreement in 1994.

Article 27 in the constitution restricts private firms from exploring oil in the country, while article 28 limits the private energy firms to run state-controlled organisations.

The new plan would let global energy giants such as BP, Shell, and ExxonMobil, which have been struggling to find newer resources, to invest billions of dollars.

Currently, Mexico is the third largest crude supplier to the US and has the fourth largest shale gas reserves in the world.

The state-controlled Petróleos Mexicanos is the exclusive producer of oil and gas and it contracts private firms to explore and drill wells. However, this arrangement has not been able to lure private investors sufficiently.

The bill, which will be tabled before the Congress, is expected to pass as the President’s Institutional Revolutionary Party and the conservative National Action Party make up the required two-thirds majority in the Parliament.

The Opposition, however, does not support any constitutional changes.

The bill focuses on profit-sharing contracts rather than production-sharing contracts – presently, countries like Ecuador, Iran, Iraq and Malaysia offer profit-sharing contract models.

The country, which is estimated to have oil reserves of 115 billion barrels of oil equivalent, saw drop in oil production in the recent times.

 “This profound reform can lift the standards of living for all Mexicans,” says Nieto.

This reform would enable the country to improve oil production to 3 million barrels-per-day (bpd) by 2018 and to 3.5 million bpd by 2025,  boost gas production from the present 5.8 billion cubic feet to 8 billion cubic feet by 2018 and 10.4 billion cubic feet by 2025.