It seems to me that the biggest story that nobody’s really been paying much attention to over the last few days is the Mexican Congress’ vote to amend the constitution to open the country’s energy markets to foreign investment after 75 years of control by state-owned firm Pemex. On top of being a major victory for new President Enrique Peña Nieto, who came to power promising to reverse his country’s slumping economic growth, this is a development with profound implications for politics, business, and the environment.
Mexico could be sitting on the world’s largest unexplored oil reserves outside the Arctic, but the country’s output has been falling over the last decade as Pemex hasn’t had the means to explore it. The country’s exports to the United States dropped below 1 million barrels for the first time in 20 years last year. Mexico may also have the world's sixth-largest recoverable shale gas reserves.
Oil is a hot-button political issue in Mexico, which celebrates a holiday every year to commemorate the day the country seized control of its fields from foreign companies in 1938. During the debate on the bill, one lawmaker stripped down to his underwear to demonstrate what he called the “stripping of the nation.” Sixty-five percent of Mexicans opposed the move in a recent poll.
U.S. oil companies are obviously going to be first in line to invest in a nearby, relatively stable country. But firms from Asia—particularly China—might be close behind. Given the political difficulties China has faced in gaining access to Canada’s significant oil resources, Xi Jinping is likely to amp up the charm offensive with Peña Nieto expected to visit Beijing next year.
Foreign companies will still have to partner with Pemex, but Citigroup says the move could add about 2.5 million barrels a day to world supply. It could also cement the Western Hemisphere’s rising importance to world oil markets. And of course, from an environmental perspective, adding the equivalent of a new Nigeria to the global oil supply could be catastrophic, not to mention certain recent events in the Gulf.
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It’s the source of creativity and delusions. It can harm us more than it helps us.
Happy Constitution Day!
Too bad it’s almost certainly unconstitutional.