The oil industry in Mexico, which has declined in recent years, is poised to make a major comeback with reforms proposed by President Ernique Pena Nieto. As the New York Times reported earlier this month, Mexico’s oil reserves have dropped from about 60 billion barrels to a bit more than 10 billion barrels over the past 20 years. And the country’s national oil company, Petroleos Mexicanos (Pemex), has neither the money nor the expertise to tap into potential new oil supplies.
Pena Nieto wants to change that, with reforms that invite foreign companies to team with Pemex to explore potential new sources of oil while sharing profits from exploration.
Experts say such partnerships will likely have the most positive impact on the United States, thanks in part to its geographic proximity to Mexico and already strong relations between the two countries. They could also have an impact on downstream industries such as manufacturing. “It will be interesting to see the effect it may have on manufacturing, not just in Mexico but also in the U.S,” said Roberta Gamble, a partner in Frost & Sullivan’s Energy & Environment practice, during a recent presentation on emerging markets.
Gamble observed that a big increase in shale oil coming from the U.S. has benefited manufacturing facilities in Mexico. “Natural gas in Mexico is about four times the price of what it is in the U.S.,” she said, noting that natural gas exports to Mexico hit a record in 2012. Natural gas from the U.S. meets about 20 percent of the country’s demand, she said, which helps facilitate rapid industrial expansion in Mexico.
Pemex plans to double that capacity with the cross-border Ramones pipeline project. When finished in 2015, the pipeline will span 750 miles, from Agua Dulce, Texas, to central Mexico, Reuters reports. Gamble called it “the biggest energy infrastructure development in 40 years.”
While reforms like those proposed by Pena Nieto will invite more foreign investment, Mexico is also looking to its private sector to help fund $200 billion a year in infrastructure investment, said Cristiano Zaroni, director of Latin American Operations for Frost & Sullivan.
Although Latin American economies are still largely dependent on commodities like oil, the country is seeing “a strong move” toward newer industries such as high tech and alternative energy, Zaroni said. Technology giants like Microsoft and Cisco are making steady investments in the region, and relative newcomers like Argentina’s Globant are garnering attention with moves like Globant’s plan to raise $86.25 million in an initial public offering in the U.S.
Ann All has covered business and technology for more than a decade, writing about everything from business intelligence to virtualization. She has written extensively about outsourcing, including authoring the popular Straight to the Source blog for IT Business Edge.