Energy reform should drive investment in Mexico, experts say

Published in conjunction with MarketWatch

WASHINGTON – With Mexico’s new oil and gas reform implementing laws set for release later this month, international oil companies likely will look toward investment opportunities in energy production because the risks will bring higher rewards now, a leading industry expert said Monday.

Mexico approved reforms in December to break up the country’s state-run oil company, Petróleos Mexicanos, or Pemex, which has held an energy monopoly for more than 75 years. The action opens up the market for private companies to bid on potential production fields starting in 2015.

The timing is “pretty exquisite” in terms of investing in Mexico, said Citigroup Head Commodities Researcher Ed Morse at a conference sponsored by the Center for Strategic and International Studies at Johns Hopkins University.

“Given the light of geopolitics, companies will find that in Mexico, the risk-reward opportunities will likely be moving more to risk in terms of reward,” Morse said.

With the reforms, private Mexican firms and international companies can invest and produce oil, gas and electricity. The goal of the reform, announced with fanfare by President Enrique Peña Nieto last year, is to garner more outside interest in energy production and increase Mexico’s gross domestic product by 1 percent by 2018, according to the Mexican government.

“The constitutional amendments that were passed … only last December are really a game changer,” former Pemex General Director Jesus Reyes Heroles said.

Combined, the U.S., Mexico and Canada would become a surplus sour crude supplier, possibly pushing out sour crude supplies from the Middle East and Russia, Morse said. With North America’s 6.3 million barrels per day crude production plus crude production from Iraq and other European refining capacities, Morse said the Atlantic Basin can move from structural balance to crude oil oversupply.

“North America has a necessary energy resource to fuel its economic growth for a long time,” Mexican Ambassador Medina Mora said. “Through energy reform, Mexico will redefine its role in the energy sector, while the U.S. is adjusting to a new reality as a potential exporter for oil and gas.”

Mexico is one of the top oil producers in the world, ranking ninth in 2012, and is the third largest petroleum exporter to the U.S., according to the U.S. Energy Information Administration. But production hasn’t been as strong over the years, making this a prime time for the reforms to take place.

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