Mexican President Peña Nieto recently proposed changes to the country’s constitution to allow private investment in Mexico’s oil industry. This is a maverick move in a country whose “national DNA has been programmed to see energy as a national treasure” [as described by a McClatchy report]. President Cardenas nationalized the oil industry in 1938 and ejected foreign investment (including Exxon Mobil and Royal Dutch Shell) in that sector. Previous efforts to open up the sector prompted public protests and eventually fizzled. Besides its symbolic importance of national independence, the state-owned oil monopoly Petroleos Mexicanos (Pemex) employs over 100,000 Mexicans (with strong union representation), and oil proceeds comprise a third of all revenues raised by the central government.
Because of the sensitivities over the ownership of oil, the government plans to offer foreign investors a share in the profits of the oil and gas they produce, rather than allowing them to invest in the reserves themselves. Loren Steffy, writing for Forbes.com, comments that Peña Nieto’s plan is likely to encourage some form of joint venture with foreign companies to get around the legal challenges. But Steffy points out that “getting around public opposition may prove far more difficult.” Two polls conducted in Mexico corroborate this point.
The first was conducted by the Center for Research and Teaching in Economics (CIDE) in 2012 among 2400 Mexican adults and 535 Mexican academic, political, private sector, social and media leaders. The results show that large majorities of the Mexican public (77%) and Mexican leaders (90%) believe that, broadly speaking, foreign investment benefits Mexico. But there are still key sectors they regard as off limits, most particularly the oil sector. Three in four Mexicans oppose foreign investment in oil (65%) with only three in ten (31%) in favor. Mexican leaders are more open to the idea (59%), though less so than they were in 2004 (when 76% supported it).
Another poll conducted August 8-13, 2013 by the polling firm Buendia y Laredo with the Mexican newspaper El Universal finds that six in ten Mexicans disapprove (62%) of allowing private investment in Pemex (two in ten favor). Yet a majority also think that Pemex needs to make changes to work better (62%, with 28% disagreeing, saying it works fine as it is). Asked which of four types of changes should be included in energy reform, a plurality say that reforms should include reinvesting earnings to increase production (40%), followed by reducing union influence on Pemex (26%), and making the Pemex bureaucracy use fewer resources - "hacer que la burocracia de Pemex gaste menos recursos" - (21%). Only five percent say it should include privatizing Pemex.
Pemex may endure as a national symbol, but over the years its productivity has declined due to decreasing production, rising costs, industrial accidents and corruption scandals. While North American energy companies have been experiencing a revolución in natural gas extraction, Mexico lags behind in this technology and know-how. The Mexican people seem to understand to a degree: while four in ten (38%) believe that Pemex is one of the most modern companies in the world, more Mexicans say that it is either one of the least modern (24%) or neither the most nor the least modern (24%). In addition, four in ten (40%) say that if no reforms are made to Pemex, in twenty years' time, Pemex will produce less oil than it does now (29% more, 23% the same).
The Wall Street Journal reports that Pemex's CEO Emilio Lozoya has announced they will set up a new company to explore and produce shale gas and deep-water oil in the US, a first step in presenting Pemex as an international oil company. This gutsy move may help diversify the company in its first attempt to expand beyond its national borders. It will be interesting to watch as the debate proceeds on Pemex and energy reform - both timely discussions on the eve of the twentieth anniversary of NAFTA. It's the kind of thing the oil industry had hoped that NAFTA would bring.