Cross-Posted from DeSmogBlog
After generations of state control, Mexico’s vast oil and gas reserves will soon open for business to the international market.
In December 2013, Mexico’s Congress voted to break up the longstanding monopoly held by the state-owned oil giant Petroleos Mexicanos — commonly called Pemex — and to open the nation’s oil and gas reserves to foreign companies.
The constitutional reforms appear likely to kickstart a historic hydraulic fracturing (“fracking”) and deepwater offshore oil and gas drilling bonanza off the Gulf of Mexico.
“This reform marks a major breakthrough in Mexico’s economic history only comparable to the signing of the North America Free Trade Agreement (NAFTA) in 1992,” international investing and banking giant Banco Bilbao Vizcaya Argentaria (BBVA) wrote in a January 2014 economic analysis.
What does this mean for the oil and gas industry in Mexico? And for the workers and those who live above these oil and gas plays or along the pipeline routes that will funnel the liquids to refineries? And how about for the Earth’s atmosphere?
Can Mexico’s fossil fuel infrastructure handle the boom? Can the country spare the precious freshwater supplies needed for thirsty fracking operations in an era of increasingly severe droughts and drinking water shortages? Can environmental, safety and public health regulations possibly keep up with this industrial boom?
DeSmogBlog will examine all these issues and more as Mexico opens its fossil fuel reserves to international exploitation in the weeks and months ahead. But, first, an overview of the state of play in Mexico’s energy reforms.
Full Circle: History of Mexican Energy Reforms
The contemporary history of Mexico’s energy industry started in 1938 when the federal government kicked out foreign oil companies and nationalized the oil and gas sector under the Pemex banner.
As a recent report published by the Congressional Research Service explains, nationalization occurred in the aftermath of a bitter labor dispute between Mexican workers and the international oil and gas firms who wanted to gain a foothold in the country.
“Tensions culminated in President Lázaro Cárdenas’ historic 1938 decision to abandon efforts to mediate a bitter labor dispute between Mexican oil workers and foreign companies and instead follow through on his threat to expropriate allU.S. and other foreign oil assets in Mexico,” the report explains.
Upon its creation in 1938, Pemex became a symbol of national pride and…united a disparate Mexican society against foreign intervention.
For 75 years, Pemex alone had access to Mexico’s massive oil and gas reserves. Mexico is the world’s 9th largest producer of oil and revenues from developing the resource fund roughly one-third of the country’s budget.
But Enrique Peña Nieto of the Institutional Revolutionary Party (PRI), elected in July 2013, has made the “open door” energy reforms — on top of reforms in a whole host of other policy spheres — a top priority for his administration as part of his “Pact for Mexico.”
There’s some historical irony at play here: Nieto’s PRI is the party that originally nationalized the Mexican oil industry to begin with.
And the constitutional amendments also bring labor relations full circle, as the new board of directors for Pemex won’t include union representation, even though a labor dispute served as the rationale for nationalization of the Mexican energy industry back in 1938.
All five union representatives have been removed from the board of Pemex, which is shrinking from 15 to ten members.
Proponents for Mexico’s energy reforms envision a gold rush. They argue the constitutional amendments and accompanying secondary legislation still up for debate in the Mexican legislature could add as much as $35 billion in outside investment into the national coffers.
Pemex says $25 to $60 billion could come its way as a result of joint ventures it can now sign with international oil and gas companies, while the industry-funded Manhattan Institute says 2.5 million jobs and more than $1 trillion in revenue could be created by 2025.
Texas Observer investigative journalist Shannon Young is skeptical of the numbers and figures being tossed around, however: