US Energy Companies Poised to Benefit from Mexico Energy Reform
“This implies that opportunities for oil and gas companies will also translate in opportunities for other businesses in manufacturing, mining, and services, particularly those that are energy-intensive. This could also boost government revenues. Lower energy prices will reduce the need for electricity subsidies. This will ease pressures on public finances which remain one if not Mexico’s largest economic weakness,” said BBVA Compass in the report.
Private, foreign companies interested in investing in Mexico’s energy sector will face challenges in security and infrastructure. Companies operating in northern Mexico will need to be mindful of security not only for their workers, but for vandalism of infrastructure such as pipelines, Stewart noted.
Other sources of uncertainty could affect the expected benefits of reform. The surge in unconventional shale gas exploration in the United States created a supply surplus that depressed U.S. gas prices, raising the question of whether Mexico’s shale exploration projects would be as attractive to U.S. investors, BBVA Compass noted. The incentive to make significant financial investments in Mexico’s deepwater oil fields could decline as oil production increases in other parts of the world could create oversupply, and automobile technology could significantly reduce hydrocarbon demand.
“Forming reasonable expectations is crucial for private companies interested in Mexico’s energy industry,” BBVA Compass noted. “Mexico’s complex business environment highlights the need to continue improving the institutional framework, which in turn could enhance the potential of the energy reform. Therefore, prudency should be favored over excessive enthusiasm.”
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