New energy opportunities in Mexico

Shannon O’Neil and James S. Taylor recently wrote a great primer on Mexican energy reform.  Click here to read the whole article.

The part I found most interesting is at the end, where they discuss the possibilities for future energy development in Mexico.  Besides the opportunity for partnering with PEMEX, here are some areas where they see real investment potential:

1. Shale oil and gas. Mexico possesses substantial shale gas resources that Pemex has effectively left untouched. There are five promising, geographically disbursed basins in the country, as identified by Pemex. The Cuenca de Burgos (as the Eagle Ford is known in Mexico) is estimated to hold two-thirds of Mexico’s technically recoverable shale gas resources and would have significant appeal for companies familiar with the geology of the formation and the infrastructure that exists in the region.”  

2. “Pipelines. With the current lack of sufficient pipelines creating inefficiencies in the sector, we believe there are significant opportunities to invest in midstream infrastructure.”

3. “Electricity. The energy reform also includes the opening to private investment for electricity generation. The major areas of opportunity in this field will be in the addition of power generation capacity (nuclear energy will remain solely responsibility of the Mexican government) and in the upgrading and improvement of the electricity grid.”

It is amazing that the government was able to reform PEMEX at all, given how much of a sacred cow it has been.  But as the authors make clear, this was just the first step of many.  Mexico needs a host of secondary reforms to clarify and support the new laws.  Apparently the executive branch is currently working on that and should have a package together in the next couple of weeks.  Vamos a ver…

Mexico news & views

1. Why Mexico’s Management of Protected Witnesses is a Disaster by the excellent InSight Crime.

“Mexico, must deal with all of the downsides [of protected witnesses] (cases falling apart because of lying witnesses) but none of the benefits (witnesses regularly contributing to successful convictions against dangerous criminals).”

2. Mexico Extortion Hits 1/3 of Foreign Businesses (also by InSight Crime)

“A survey by the American Chamber of Commerce of Mexico (Amcham) found that 36 percent of the businesses questioned reported being threatened with extortion last year, double the number reported in 2011.”  uh-oh

3. Reflections on Mexico’s Energy Reform

“Based on the fallacy of Pemex’s resource shortages (financial, technical and human), it will be claimed that it is essential to complement them with contributions from private individuals – both national and foreign.” not sure I agree with this article, but still interesting.

4. Economy as Grand Guignol: The Postreform era in Mexico  by William Glade

What is labeled by the portmanteau term “drug trafficking” is actually instantiated in a complex of thriving ancillary enterprises that support output of the main product, narcotics. Viewed as an oligopolistic set of multiproduct firms, popularly called “regional drug cartels,” the narcotics industry per se has been backed up by an astonishingly efficient production regime for such side products as assassination, intimidation, human trafficking (moving illegal migrants of Mexican and other origin) across the northern frontier, extortion, lucrative kidnapping-for-profit schemes, money laundering, and increasingly grisly massacres over wider stretches of the Republic.”  I had to google “guignol” but a very interesting book chapter available online.  Also check Tyler Cowen’s video on the economics of drug trafficking and violence in Mexico here.

5. Student loans come to Mexico

“Meanwhile, some analysts question the real value of a college education in Mexico, where graduates often suffer higher rates of unemployment than those with less education.”