Mexico mulls ending oil monopoly

Mexican President Enrique Pena Nieto delivers a speech before the signing of the bill of constitutional reform that allows state-owned oil company Pemex to partner with private for exploration and extraction of hydrocarbons, keeping the company in the hands of the State in Mexico City, on August 12, 2013.

Right now, if the Mexican government needs help drilling for oil and gas -- and it does need help especially in deep water drilling and shale -- it’ll pay outside oil companies a fee. The thing is, oil companies haven’t really been that interested in Mexico’s fees.

"Mexico’s sitting on a mountain of supply of oil and gas but their production has fallen year after year," says analyst Phil Flynn with Price Futures Group, referring to the 25 percent drop in Mexico’s oil production in the past decade.

So the idea now is to attract companies by letting them share in oil profits. Mexico’s president Enrique Peña Nieto is proposing ending his government’s monopoly on oil production, which will require amending the Mexican constitution. If that works, 87 billion barrels of oil could come to market.

"It should result in cheaper more abundant energy, which is beneficial to U.S. consumers through lower gas prices, but also U.S. manufacturing," says Chris Low, chief economist at FTN Financial. Manufacturing uses a tremendous amount of energy, "so if it’s cheaper, we are more competitive."

That doesn’t of course address environmental costs of all that carbon. The move bolsters a political benefit that is already taking shape, says Jeff Miller, president of Miller Oil Company in Norfolk Virginia. "One of the overriding things going on here is that over the past 5 to 10 years there has been a real shift in where we see the future of oil production," says Miller. "It’s happening in our hemisphere not the Middle East."

Mexico has had its own share of instability, it’s not clear if new oil revenues would mitigate or exacerbate that.

This all supposes of course that Mexico’s oil comes online. Sovereign control over oil is a point of pride in Mexico, and letting go of that won’t happen without a fight.

About the author

Sabri Ben-Achour is a reporter for Marketplace, based in the New York City bureau. He covers Wall Street, finance, and anything New York and money related.

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