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Friday, December 6, 2013

Mexico's Oil and Gas Sector: Background, Reform Efforts, and Implications for the United States - R43313


Clare Ribando Seelke
Coordinator, Specialist in Latin American Affairs

The future of oil and natural gas production in Mexico is of importance for both Mexico’s economic growth, as well as for U.S. energy security, a key congressional interest. Mexico has consistently been a top crude oil supplier to the United States. However, its oil production has declined dramatically in recent years. The Mexican Congress is in the midst of considering historic reforms to open Mexico’s oil and natural gas sector to international companies that could potentially help Mexico reverse those declines. If adopted, these reforms could create significant investment opportunities for U.S. companies, increase the already robust U.S.-Mexican energy trade, and bolster North American competitiveness.

Mexico’s state oil company, Petroleos Mexicanos (Pemex), established in 1938 as the world’s first major national oil company, remains an important source of government revenue even as it is struggling to counter the country’s declining oil production and reserves. Experts have long urged the Mexican government to reduce the heavy fiscal burden on Pemex and reform the constitution to enable Pemex to partner with international companies that have the experience and capital required for exploring Mexico’s large deep water and shale resources. Numerous stakeholders in Mexico remain concerned, however, that increasing private involvement in Pemex could threaten Mexico’s traditional control over its natural resources.

President Enrique Peña Nieto of the nationalistic Institutional Revolutionary Party (PRI) won the Mexican presidency on December 1, 2012 after 12 years of rule by the conservative National Action Party (PAN). Even though Peña Nieto stood for the PRI, the party that originally nationalized the oil industry, he campaigned on an economic platform that prioritized allowing Pemex to form joint ventures with private companies. President Peña Nieto introduced an energy reform proposal dealing with the hydrocarbons and electricity sectors in August 2013 and is urging the Mexican Congress to enact those reforms during the current legislative session that concludes in mid-December 2013. With support from the PAN and other small parties, the prospects for reforming Pemex appear better now than in the past.

The U.S. Congress has legislative and oversight interests in examining the potential implications of Mexico’s oil and natural gas reforms on U.S. hydrocarbons imports and exports, bilateral trade and investment, and economic conditions in Mexico (a top trade partner). The U.S. House and Senate have passed legislation (H.R. 1613 and S. 812) related to implementing a U.S.-Mexico Transboundary Hydrocarbons agreement that would facilitate joint development of oil and natural gas in part of the Gulf of Mexico. Other legislation has been introduced dealing with U.S. approval processes for North American energy infrastructure, including oil and gas pipelines (H.R. 3301). The North American Free Trade Agreement (NAFTA) excluded private investment in Mexico’s energy sector, but it is possible that these issues could be addressed in the ongoing negotiations for the proposed Trans Pacific Partnership (TPP) agreement. Regardless, an opening of Mexico’s oil and natural gas sector could expand U.S.-Mexico energy trade and provide opportunities for U.S. companies and investors involved in the hydrocarbons sector, as well as infrastructure and other oil field services. If these reforms accelerate growth and investment in Mexico (as the government has promised), they could benefit North American competitiveness.

Date of Report: November 18, 2013
Number of Pages: 21
Order Number: R43313
Price: $29.95


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