Peña Nieto Seeks to Open Mexican Oil and Gas to Foreign Investors

August 20, 2013

The government’s seven decades-long monopoly over Mexican oil and gas development may soon be over, if Mexican President Enrique Peña Nieto has his way. On Aug. 12, Mr. Peña Nieto submitted an energy reform bill to the Mexican legislature that would open Petróleos Mexicanos (Pemex) to foreign and private partners.

Political observers suggest that the bill has widespread support in the ruling PRI and opposition PAN parties, who together comprise two-thirds of the legislature – necessary to effect the constitutional amendments required to break the monopoly.

Less clear is the level of investor enthusiasm for the bill, which would allow foreign partners to share in the profits, but not the production, from new joint ventures. This, coupled with Pemex’s history of corruption, may stymie Mr. Peña Nieto’s ambitions.

Still, while Pemex has tapped much of the shallow Gulf of Mexico oil fields, it has been unable to access deeper Gulf formations, as well as the onshore shale gas and oil reserves. The U.S. Energy Information Administration estimates that Mexico has 545 trillion cubic feet of technically recoverable shale gas – only 20 percent less than the United States. Foreign investment and technology, like horizontal drilling and high-volume, slick water hydraulic fracturing, hold the key to tapping this sizeable resource.

If produced responsibly, with commonsense requirements to capture fugitive methane and prevent water contamination, Mexican shale gas may help reduce North America’s greenhouse gas emissions, while spurring economic growth. For now, observers will have to wait on the sidelines to see if Mr. Peña Nieto has enough votes to make his energy reform a reality.