Mexico’s Powerful Energy Reforms
Mexico's recent reform of its energy sector completes the agenda of economic integration that began when the North American Free Trade Agreement was approved in 1994. Now the country is poised to become Latin America’s economic star in the decade ahead.
MEXICO CITY – Mexico is poised to become Latin America’s economic star in the coming decade. The government’s recent reform of the energy sector will contribute directly to economic performance by reducing the cost of manufacturing. In the context of the North American Free Trade Agreement (NAFTA), the resulting increase in manufacturing competitiveness promises to boost Mexico’s growth substantially.
Until the government adopted the necessary constitutional amendment and enacted the associated enabling legislation, Mexico’s energy sector was entirely state-owned. The sector’s most important component, Pemex, owned all of Mexico’s oil and gas reserves, and was exclusively responsible for exploration, production, and retail distribution. Electricity production and distribution, too, was entirely in the hands of the government.
Pemex’s limited technical know-how meant that it could not fully develop and exploit Mexico’s vast oil and gas resources. There are substantial oil reserves that require deep-water drilling technology that the company lacks. There are also old wells that have stopped producing but that could be made productive again with modern technologies. And there are potential gas and oil fields that can be tapped only with the new technologies of fracking and horizontal drilling.