Mexico's New Energy Policy Could Revolutionize Global Markets


Mexico's previous government led by Felipe Calderon's National Action Party (PAN), inherited a state energy monopoly 'Petròleos Mexicanos' (Pemex). In 2013, President Peña Nieto proposed a plan for dramatic energy reform in the country. Although many are wary that meaningful reform can be made by the Peña Nieto government, the necessity of such a reform rings clear.

The Mexican energy sector needs to be reformed to realize its constitutional commitment to attaining economic prosperity and address its need for increased competition, as well as the nation's desire to be integrated into the global economy.

The Mexican Monopsony vs. Global Energy Sectors

Mexico's reform proposal, announced in August 2013 by Nieto, is expected to include measures designed to radically alter the legal framework for oil production in the country, even if it means that the Mexican constitution will also need to be changed. This debate is centered on the idea that while countries around the world are tightly connected by trade networks (e.g., the Keystone Pipeline) the current Pemex monopoly, Mexico is isolating itself from the opportunity to strengthen its own economy by forging new global partners. 

This argument is valid. Mexico does not have an energy sector like other countries. Rather, it has one privileged contractor and, as such, boasts an energy plan comprised of a monopsony over all contributing hydrocarbons. In Mexico, the energy market is designed so that one company (Pemex) has access to all the buyers. In the modern energy sector, to continue with this model and prevent competition would isolate Mexico from international competitors as well as affect Mexico's competitiveness in the global economy. Mexico must find different and more flexible schemes to bring oil to the country in order to achieve modern energy status. Interlocutors argued that Mexico must end its tradition of isolation and engage in global partnerships. 

Colombia's energy sector, in contrast, is boosting both competition and diversity, making the Bogotá stock market the second biggest in South America, after São Paulo. This success is due to the openness of the country's energy sector.

Today, Mexico has a legal commitment to outsource to the maximum level of profitability. However, due to the current position of Pemex, neither the private sector nor the public sector has that option. 

Untangling the 'Confusion' of Mexican Energy Production

The corporate logo of Pemex - including the colours red, white, and green - reflects of the Mexican flag. This alignment of corporate identity with national identity demonstrates a deep-rooted confusion. In place of this confusion, Mexican energy reform must be a defensive strategy, and so the current proposal must result in meaningful constitutional and institutional reform. Maintaining the country's current lack of competitiveness will negatively effect the country's economy, particularly as other countries are equipping their respective sectors with the necessary means of attaining joint ventures and open conditions.