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Mexico: Transformational Change for Oil and Gas

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After Mexico’s 2013 transformational reforms to the energy sector, the nation’s oil and gas industries foresaw great success. Market forces may disagree. 

Screen Shot 2019-02-27 at 9.10.02 AMGlobal GDP is poised to nearly double over the next 20 years, propelled by a rising tide of developing countries. As two billion people exit poverty, they will be looking for energy sources to light their homes, power their businesses, and connect to the globalized market. And although governments from both hemispheres are incentivizing investment in clean energy, oil and gas are expected to continue in a pivotal role in energy generation for decades to come. Mexico’s hydrocarbons industry provides a snapshot of what’s to come: while old modes of production fall out of use and new solar farms grab the headlines, it is still oil and gas that will provide most of the country’s power for the foreseeable future.

Mexico has a lot of oil and gas, but it is not a petro economy. The average person in the streets cares about manufacturing jobs, security, good food, health, family. Very few out of the total population are depending on or working for Pemex—and Pemex represents an increasingly small share of the economy.” —Ivan Sandrea, CEO, Sierra Oil

AMBITIOUS REFORM
Launched in 2013, the Reforma Energética is one of the most daring energy transformation projects in recent history, and hydrocarbons are at the heart of it. A steady decline in production and a widening petroleum and gas trade deficit with the United States have catalyzed constitutional change in Mexico. On the chopping block are the state’s two energy monopolies: the Federal Electricity Commission (CFE) and the state-owned oil and gas company, Pemex. For the first time since the industry was nationalized in 1938, Pemex will be forced to compete against private firms. This massive public corporation employs scores of thousands and operates throughout the country—but the erstwhile cash cow is running out of money thanks to pension obligations, debts to suppliers, and a decline in production based on the price of oil.

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