Will Mexico's New Energy Plan Make It the Next Kuwait?


North America is rapidly expanding into the Middle East, at least in terms of energy production. Canada has the enviable oil sands. The United States is a world leader in natural gas. Now, Mexico, which has a state-run oil industry, is looking forward to expand its public energy enterprise into the private sector. It is a necessary step to maximize the resources available and bring back Mexico’s historical reputation as a global energy leader. 

Consensus and reform rarely go together, and Mexican politics is no different, where there are more than two dominant parties (unlike in the United States). Currently, President Enrique Pena Nieto is a member of the Partido Revolucionario Institucional (PRI) party, which regained power in the 2012 after a 12-year absence.

Compromise among the divided government is not entirely impossiblebut the Mexican constitution is an obstacle. The energy sector is as much a part of the government in Mexico as Social Security is a part of America's. The Mexican constitution would have to be amended to change the oil monopoly that is Pemex, the largest company in Mexico.

If Pemex is broken up, foreign money could flow into industrial exploration and development among oil and gas fields. Some economists predict that opening up this sector will add one percentage to GDP. When the stakes are that high, cross multiple political parties, and involve the largest industry in the world, corruption is an obvious possible consequence.

Pemex constitutes one third of the Mexican economy, but production has been on a downward path in recent years. In 2004, Petroleos Mexicanos produced 3.5 million barrels per day. Now, that rate is down to 2.6 million. If that trend continues, by the end of the decade, Mexico would be a net-energy importer.

Relying on foreign oil and the problems that can accompany it is something that the United States can relate to.

Histotically, Mexicans feel strong nationalistic pride towards their country’s public energy company. In 1938, President Lazaro Cardenas, a member of the PRI, nationalized the industry, closing the door to foreign interests. That has been the standard for the past 70 years and for the vast majority, Mexico has done well. Prior to the Great Depression, Mexico was the second largest oil producer in the world, albeit with assistance from American oil tycoons.

President Nieto is portraying the opponent’s issue with foreign involvement in the oil industry as inevitable. If nothing is done, Pemex will become increasingly inefficient and unable to keep up with foreign competitors. If Pemex is broken up now, foreign money may help alleviate the troubles and more revenue will be created as a result.