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article imageOp-Ed: Mexico opens state-controlled oil sector to foreign investors

By Karen Graham     Dec 13, 2013 in Business
For the first time in 75 years, foreign investors will be allowed to join with Pemex, Mexico's state-run energy giant, to explore and extract oil and gas, taking a share of the profits, as well. With the opening of relations with Russia, is this all?
The BBC announced on Friday that controversial legislation opening Mexican oil and gas fields to foreign investment has passed the Chamber of Deputies, after passing the upper house, the Senate, on Thursday.
Mexican President Enrique Pena Nieto has been pushing to overhaul Mexico's energy sector, making the issue a top priority for his administration. "The energy reform is a fundamental transformation, which will enable Mexico to strengthen its sovereignty and energy security," President Pena Nieto posted on his Twitter account after the vote.
President Pena Nieto also said the move will aide in boosting the economy as well as create new jobs. The legislation did face stiff opposition, even leading to some scuffles in the lower house during the long debates before the final vote took place.
Enrique Peña Nieto - World Economic Forum on Latin America 2010
Enrique Peña Nieto - World Economic Forum on Latin America 2010
Edgar Alberto Domínguez Cataño.
The opposition party, the Democratic Revolution Party (PRD), used a number of tactics in their effort to hold up the vote, including barricaded the chamber's entrances to prevent MPs from the PRI, PAN and Nueva Alianza parties from entering.
Landy Berzunza of the governing PRI party, was taken to the hospital after getting in a scuffle with opposition MP Karen Quiroga. Berzuna ended up with a scratched retina. MP Antonio Garcia Conejo, from the PRD, showing his rejection of the legislation, and how he felt about Mexico being stripped of its resources, stripped down to his underwear.
"This is how you're stripping the nation. Where is the benefit? I'm not ashamed, what you're doing is a shame!" Garcia Conejo said as he dropped his trousers and removed his socks. By this time, all hell had broken loose, as obscene gestures were hurled back and forth, amid shouts of "traitor," and "ruffian," that filled the air.
Riot police had to be called in to break-up the disturbance. When all the shouting was finally over, the legislation passed with the Chamber of Deputies voting 354 to 134 to give general approval to the bill. The bill still has to get final approval from 17 of Mexico's 32 federal entities, the District Federal and 31 of the states.
Mexico has been in economic crisis over its oil production for some time now. Oil made up about 16 percent of Mexico's export earnings in 2011, with the oil industry accounting for more than 30 percent of its revenue.
But according to a report by the U.S. Energy Department's information administration, with the worldwide recession affecting the Mexican economy, even with prudent fiscal policy in play, the government still has become too dependent on oil. The report concluded, "The risk of decline in oil output, in the absence of energy reform, is a threat to fiscal stability."
With Mexico's fall in oil production hitting 25 percent since 2004, U.S. imports of natural gas increased 21 percent, to 2.1 billion cubic feet per day year-on-year. This is despite Mexico being one of the 10 largest oil producers in the world. Added to the decline in oil production is the environmental degradation of the oil fields as well as Mexico being behind the other member states in emissions.
Mexico has been actively working on the problem of increasing the viability of its oil production, and at the same time reforming the economy. To that end, a delegation from Mexico visited the Nizhny Novgorod region in Russia this past month, ahead of the passage of the controversial legislation.
A gas flare over Lukoil oil refinery south of Kstovo. The photo is taken from a point a couple km SW...
A gas flare over Lukoil oil refinery south of Kstovo. The photo is taken from a point a couple km SW of the city, between Kstovo, Zeleny Gorod Forest, and the Kudma River .
Vmenkov
The Nizhny Novgorod Region is one of the largest regions in the Russian Federation, and Nizhny Novgorod is Russia's third largest city. But the major draw for the region is it's industrial, technological and petroleum capabilities. Mexico's Ambassador to Russia, Ruben Beltran said after the visit, "First off, we would like to develop inter-regional relations in such areas as engineering, metallurgy, information technology and the production of automotive components."
Located just 14 miles from Nizhny Norgorod is Kstovo, home to Lukoil. It's possible that Mexico is looking for a partner in Lukoil, Russia's second largest oil company and second largest oil producer. With the backing of an investment from Lukoil, Mexico could dig itself out of an economic morass, as well as getting the needed resources to upgrade its oil fields, increasing productivity.
Mexico developing strong economic ties with the Russian Federation needs to be looked at very closely by the U.S. With our dependence on Mexican oil, we could be looking at increased prices in the near future. And with the "May Decrees" signed by President Putin, Russia is actively seeking contacts with foreign countries, and its probably not us.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of DigitalJournal.com
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