The Second Stage of Mexico's Energy Reform

“The state is the second-most important producer in gas and oil…”

David Gustavo Rodriguez is economic development manager for the Mexican state of Tabasco. The state is a hub of the country’s offshore oil and gas industry, perched on the southern shore of the Gulf of Mexico. But production is in decline. To bring it back up, the region needs an influx of private capital, technology, and expertise. Which is why Rodriguez is here in front of the Greater Houston Partnership, making a pitch to potential investors.

“…and this, in short terms, means partnership…”

Mexico amended its constitution in December, ending a seventy-five year ban on foreign investment in the country’s oil and gas sector. Last month, the Partnership sent a delegation of Houston business leaders to Mexico City to meet with top members of President Enrique Peña Nieto’s government.

“We got the clear sense that Mexico is very serious about the reforms.” 

Eduardo Aguirre served as U.S. ambassador to Spain under President George W. Bush. He now heads the Partnership’s committee on international trade and investment.

“It’s going to open up to companies everywhere in the world, but certainly, most of them heavily represented in Houston, to do the seismographic work, to do the drilling, in some cases to the fracking, obviously the production of oil and gas, and the treatment and transportation.”

But many hurdles remain before investors can bid on deep water blocks off Mexico’s coast, or Mexican tracts of the Eagle Ford Shale. Stephen Zamora heads the Center for U.S. and Mexican Law at the University of Houston Law Center.

“The government, they set up a schedule, whereby the Mexican Congress would have to approve twenty-five different, highly complicated, intricate implementing laws, by the end of April. It’s unclear to me, and at least to some of the experts I have heard from, whether they will really be able to do that.”

Then there’s the National Hydrocarbons Commission. Established in 2009, the commission’s remit now includes regulating Pemex, the national oil company, as well as foreign investors. Zamora says it lacks the resources to do its job effectively.

“The challenge that Mexico faces is to go from a monopoly and an uncompetitive market, which has traditionally been unregulated, to all of a sudden an open energy economy with foreign investors, and you can’t do that without sophisticated regulation, and it has to do that very quickly.”

Zamora says if all that goes awry, it could discourage investors, hurting the future of Mexico’s energy industry. The UH Law Center is partnering with ITAM, one of Mexico’s top universities, to help train new regulators. But it’s a race. The National Hydrocarbons Commission has scheduled its first bidding round for June 2015.

 

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