Shannon K. O'Neil

Latin America's Moment

O'Neil analyzes developments in Latin America and U.S. relations in the region.

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A Primer: Mexico’s Energy Reform

by Shannon K. O'Neil
March 20, 2014

Employees walk on a bridge at the Mexico’s state-run oil monopoly Pemex platform “Ku Maloob Zaap” in the Northeast Marine Region of Pemex Exploration and Production in the Bay of Campeche April 19, 2013 (Victor Ruiz/Courtesy Reuters). Employees walk on a bridge at the Mexico’s state-run oil monopoly Pemex platform “Ku Maloob Zaap” in the Northeast Marine Region of Pemex Exploration and Production in the Bay of Campeche April 19, 2013 (Victor Ruiz/Courtesy Reuters).

This past December, Mexico passed a historic energy reform that has the potential to fundamentally transform the country’s oil, gas, and electricity sectors. In this brief that I co-authored with James Taylor, founding partner at Vianovo, we lay out the importance of the soon-to-be-announced secondary legislation, provide an outline of the newly formed regulatory regime, and explore the types of opportunities that the reform will create.

Mexico is the world’s 9th largest producer of oil and the third-largest in the Western Hemisphere (behind the United States and Canada and ahead of Venezuela). It has vast untapped shale oil reserves, estimated to be the 5th largest in the world, according to the U.S. Energy Information Administration.

As the third largest supplier of crude oil to the United States (after Canada and Saudi Arabia), Mexico accounts for roughly 12 percent of its northern neighbor’s total imports. The lion’s share of Mexico’s crude oil exports (85 percent) head to the United States—all supplied via tanker, as Mexico does not have international oil pipeline connections.

While Mexico has immense oil and natural gas supplies, it has been on a decade-long track toward becoming a net energy importer. Oil production has been steadily declining, falling by 1 million barrels per day since 2004. With limited domestic refining capability and strong demand, the country is already a net importer of refined petroleum products, such as lighter grade gasoline and diesel. And in natural gas, Mexico’s growing consumption needs (for power generation and to meet industry demand) outstrip its productive capacity, leaving the country as a net importer of the fuel. Mexico’s main supplier of natural gas is the United States, with imports arriving both as liquefied natural gas (LNG) and via an integrated and growing network of cross-border natural gas pipelines.

You can read the rest of the brief here.

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