The Past, Present, and Future of Energy in Mexico: Prospects for Reform under the Pena Nieto Administration

Article excerpt

I.    INTRODUCTION  II.   THE PRESENT: PEMEX IN THE TWENTY-FIRST CENTURY       A. Declining Production Since 2004       B. Consequences of Declining Production       C. Reasons Behind Declining Production: the "Pemex          Situation".       D. Solutions to the Production Conundrum  III.  THE PAST: PETROLEUM LAWS IN MEXICO       A. The Constitution of 1917       B. The Expropriation of 1938 and the Origins of          Pemex       C. The Petroleum Law of 1958       D. Pemex Since the 2008 Energy Reform   IV.  THE FUTURE: CURRENT OUTLOOK FOR ENERGY       REFORM       A. The Elections of 2012       B. Potential Models for Reform in Mexico       C. Outlook for Reform Under Pena Nieto 

"Wisdom lies neither in fixity nor in change, but in the dialectic between the two."

"La sabiduria no esta ni en la fijeza, ni en el cambio, sino en la dialetica entre ellos."

--Octavio Paz, The Monkey Grammarian

I. INTRODUCTION

Petroleos Mexicanos (Pemex) is Mexico's national oil company. (1) Pemex is simultaneously known as the "cash cow" and "sacred cow" of Mexico. (2) As a cash cow, Pemex is often responsible for more than one-third of the Mexican government's revenues. (3) As a sacred cow, Pemex is a profoundly important symbol of Mexican sovereignty and independence, on par with cultural icons like the Virgin of Guadalupe and the Mexican flag. (4) But these dual roles are increasingly at odds. Pemex is burdened by the enormous tax obligations of a cash cow, yet--as a sacred cow--is handcuffed by strict constraints under Mexican law. (5) Pemex is currently struggling to balance these roles while also adapting to a challenging and unfamiliar production environment. (6)

The future of Mexico is closely tied to the future of Pemex. Pemex is the largest oil producer in Latin America and is among the four largest producers in the world. (7) Pemex is wholly owned by the Mexican government and has a monopoly over many facets of the Mexican petroleum industry, including the exploration and production of hydrocarbons. (8) As a fiscal engine of the Mexican state--responsible for thirty to forty percent of the federal government's income--Pemex affects the lives of nearly all Mexicans. (9) Revenue from Pemex funds public spending on everything from education and health care to public infrastructure and poverty alleviation programs. (10) Pemex is also a major employer of Mexican citizens and is responsible for the country's energy security. (11)

Internationally, the future of Pemex is strategically and commercially significant. Mexico is a key energy partner of the United States. (12) Mexico is not a member of the Organization of the Petroleum Exporting Countries (OPEC), and remains among the top three suppliers of U.S. foreign oil imports, alongside Canada and Saudi Arabia. (13) As important as Pemex is from a supply perspective, the company's role as the financial bedrock of the Mexican government is even more important in the current era of U.S.-Mexico relations. Pemex is critical to the stability of the Mexican government, which affects the United States in many important respects. Finally, the international energy industry--including companies from Asia to Europe, and all over the Americas--is keenly interested in investing in Mexico's energy sector. (14)

Not by coincidence, Mexico's newly elected president, Enrique Pena Nieto, identified energy reform as the "signature issue" of his administration. (15) Pena Nieto has committed himself to achieving the meaningful reform that eluded his predecessor. (16) After oil production in Mexico dropped by a quarter in just a few years, then-president Felipe Calderon passed the 2008 Energy Reforms aimed at modernizing Pemex and providing avenues for private participation in the energy sector. (17) Despite many important changes, the 2008 Energy Reforms did not address fundamental obstacles to attracting the foreign investment that Pemex needs. …