Mexico’s Energy Reforms

 

CaptureThe landmark energy reforms in Mexico are an important development that will transform Mexico’s energy sector and broader economy and, in the longer term, have important implications for the North American energy supply picture. The reforms Bill was signed into law in December 2013 and in August 2014 the all-important secondary legislation received final approval.

Given the significance of the reforms in Mexico and the potential for the reforms to reverse a declining trend in oil production, and situating this within the context of the unconventional oil and gas developments in Canada and the United States, there is now the potential for North America to emerge as a unified energy bloc. To this end, all three countries would benefit from closer cooperation in the energy sphere.

In early August 2014, I had the pleasure of attending the Council of State Governments (CSG) Joint National Conference in Anchorage, Alaska where I  discussed Mexico’s energy reforms, the implications for the United States and Canada, and why the need for institutionalized, trilateral energy cooperation has never been greater. (Click here to access the presentation)

Jeffrey Phillips

Photograph courtesy of Jeff Schultz

The energy reforms open up Mexico’s hydrocarbons and electricity sectors and in doing so, effectively end the 75-year monopoly over the oil and gas sector held by state-owned PEMEX, allow foreign investment across the oil and gas value chain for the first time, and bolster regulatory capacity to support the growth of a more robust energy sector.

The Mexican government expects the reforms will create jobs, contribute to GDP, and lower the costs of electricity and gasoline. For the most part, the foreign investment community has been optimistic and the reforms have been heralded as a signal that Mexico is moving in the right direction.

With the reforms comes the opportunity for Mexico to reverse a declining trend in crude oil production and perhaps one day find itself grappling with the challenges of how to export hydrocarbons to far off markets, a situation both Canada and the United States find themselves in currently.

A shift in the fundamentals of energy supply in Mexico on account of the reforms in the medium to long-term (as production will first be consumed domestically) is a key piece in the North American energy supply picture, where the region is shifting from energy importer to energy exporter.

Though competition as hydrocarbons exporters may be a reality in the North American context, Canada, the United States, and Mexico have much to gain from closer cooperation and alignment on key energy policy issues.

There is certainly a case for a more integrated North American energy market, as it would improve efficiencies for the sector and other sectors that rely on it and reinforce domestic energy security goals. On the policy side, North American partners could benefit from a common approach to addressing climate change and the harmonization of standards and best practices.

From 2001 to 2007 there was a North American Energy Working Group that brought together energy policy experts and officials from all three countries. The working group discussed key issues like natural gas developments and energy efficiency, and produced policy and statistical documents. But that group dissolved in 2007 and since that time has not had a replacement.

Whether it is under the same banner or a different one, regular, strategic, and institutionalized trilateral discussions about the shared challenges ahead with resect to energy need to be had in North America.

Effective cooperation will require political support from the highest levels. The North American Leaders’ Summit in February saw a commitment to hold a North American Energy Ministers meeting in 2014 and that meeting is expected to take place in December. It would be a shame if this ends up being a one-off meeting, as opposed to the starting point of true trilateral cooperation on an issue as fundamental to North America’s future as energy.

For more on the reforms, see the report: Opportunities for Canada from Mexican Energy Sector Reform: This Time It’s Different

 

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