Mexico’s Historic Energy Reform

Listening to the fireworks for the Virgen de Guadalupe last night from my hotel room in Mexico City, one could have mistaken them for the tumult occurring at the same time in the House of Representatives. Right before midnight, the representatives passed, by a two-thirds majority, the principles of energy reform (following the Senate’s approval earlier in the day).

Today they hammered out the final details, making a historic change to Mexico’s energy sector, a political sacred cow, by opening it up to the broader world of investment. The constitutional reforms still need to be approved by seventeen of Mexico’s thirty-two state Congresses, but with twenty-five PRI or PAN governors this seems very likely to occur smoothly.

The reform does many things:

The changes are profound, even if the reform stops short of giving private companies ownership over subsoil oil (e.g. directly booking reserves). What happens now will largely depend on the secondary legislation—which is yet to be written (or at least introduced and passed). These rules, for example, will determine which oil and gas blocs will be developed and under what terms, and will be presented next year.

If implemented, energy experts predict that oil production would steadily increase in the coming years, and natural gas (given Mexico’s significant reserves) could expand rapidly. This increase in production would likely benefit the Mexican Treasury, as even though taxes collected might be lower, the base will surely be larger. But it will also benefit the Mexican people, lowering consumer gas prices, increasing stability of supply, and making Mexico a more attractive place for foreign investment dollars.