December 18, 2013


Behind Mexico's Oil Revolution : The country's leaders saw America's energy boom and didn't want to be left behind. (Daniel Yergin, 12/18/13, WSJ)

[P]ressing economic reality--and a sense of new opportunity--finally trumped history and vested interests.

Between 2004 and 2013, while the world oil price increased from $20 a barrel to around $100, Mexico's production declined by 27%. Some predicted that Mexico could even end up a net importer of oil (as it is already of natural gas). This posed a huge risk for government finances, since revenues from Pemex, the state-owned petroleum company, provide a third of the national budget.

Moreover, officials and politicians began to ask why the government should bear the costs of exploration risk, when that is what private companies do for a living. Despite enormous development in the deep water on the American side of the Gulf of Mexico, Mexico's considerable potential in deep water has gone untapped. Pemex simply did not have the technical capabilities or the funding.

Meanwhile, with wages now competitive with China, Mexico is becoming a manufacturing center not just for exports to the U.S. but to the world market. High energy costs are recognized as a burden on the burgeoning manufacturing sector.

Developments in the U.S. also drove the change. "We can see what is going on in the United States," Pemex CEO Emilio Lozoya told me after last week's vote. "Shale gas in the United States created a sense of urgency for us." What he and others in the industry see is natural gas production rising rapidly north of the border, and its positive impact on U.S. jobs (more than two million) and competitiveness.

Posted by at December 18, 2013 8:02 PM

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