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Natural Resources Journal Current Issue

Summer 2016, Vol. 56 No. 2

Special Issue: Mexican Energy Reforms

Front Matter


Mexico is estimated to have 9.8 billion barrels of untapped oil reserves, or about 10 percent of the world’s crude oil; however, much remains undeveloped and production is declining as a result of dysfunction in the structure of Mexico’s petroleum regime. Until recently, Mexico’s Constitution and laws limited oil and gas activities to those of its state oil company, Petróleos Mexicanos (Pemex), which struggled to invest in new drilling and technology. In 2013, however, Mexico reopened its petroleum sector to foreign investment. Although 75 years in the making, Mexico is taking a bold new path toward developing its petroleum resources. Mexico stands to benefit from foreign investment and new technology to develop its remaining resources, which include shale deposits, deepwater reserves, and reserves only recoverable through modern enhanced recovery techniques.

This two-part article has two objectives: Part I reviews the history of petroleum in Mexico—much of it unhappy—as a reminder of the long and tortuous pathway that led to Mexico’s current initiative to open its petroleum sector to foreign investment. The Mexican economy was built on oil in the early 1900s, but a combination of nationalism, petroleum-investor arrogance, and eventual over-dependence on petroleum revenues all served to undermine the Mexican oil industry. It is important for petroleum investors to understand and appreciate this history in order to ease the transition of new oil production in Mexico. At the same time, the people of Mexico should take a long-term, forward-looking view of Mexico’s oil and gas future, which should be bright.

Part II, published in another journal, discusses the current reform of Mexico’s petroleum laws, including its initiative to resume direct foreign investment in the upstream petroleum sector.

From 2000 to 2014, Mexico exported around 9 billion barrels of oil equivalent—representing approximately $562 billion dollars (USD) in revenues—yet in December 2014, the remnant sum in the Oil Revenues Stabilization Fund was just $2.9 billion USD. This article analyzes the Mexican oil revenue management scheme used in this period, using evidence to analyze various explanations of how the Mexican oil revenues were used between 2000 and 2014 and to evaluate the institutional strength of the new Mexican Oil Fund for facing challenges in the near future.

Would it be it better for Mexico to remain a net importing partner of natural gas from the United States or to encourage its own Mexican Gas Revolution? Mexico has an estimate 545 trillion cubic feet (Tcf) of shale natural gas reserves, and trillions of additional cubic feet of conventional reserves. Nevertheless, the country has remained a net importer of natural gas due to underdevelopment. Meanwhile, shale gas production on the other side of the border has increased significantly over the past decade, causing United States gas prices to drop. Due to its close proximity to the major shale field development in South and West Texas, Mexico is particularly well-positioned to take advantage of unconventional extraction techniques and apply them in Mexico. This article examines the legal, economic, and environmental challenges and opportunities of the unconventional production landscape in Mexico in order to propose effective solutions by which Mexico can take advantage of its own resources.

Human activities that impact the Earth’s climate are driven, in large part, by energy consumption. Advancements in technology, infrastructure, and industry have been made possible by the use of fossil fuels. In recent decades, recognition of climate change and its causes has increased, coinciding with other, sector-wide transitions in energy generation and use. The interconnected nature of climate and energy issues calls for legal and regulatory frameworks that are better able to integrate these two concerns—effective broad-scale policy on climate must engage with the complex system for regulating energy, and forward-thinking changes in energy policy must address climate externalities on present and future generations.

This article examines Mexico’s experience in its efforts to bridge these two policy areas. Since 2012, Mexico has pursued two parallel tracks in policy developments: the enactment of comprehensive legislation on climate change, and constitutional changes related to energy—specifically, the generation of electricity. In 2013, Mexico amended its Constitution to allow for competition in electricity generation, and legislation enacted in 2014 and 2015 have called for rapid restructuring of the country’s electricity sector and the creation of a new wholesale energy market. At the same time, Mexico’s General Climate Change Act of 2012 establishes ambitious goals for greenhouse gas reduction, including a transition to greater use of “clean energy.” The constitutional reform provides a significant opportunity—if appropriately leveraged—for Mexico to make policy changes that will enable the country to play a leadership role in integrating climate mitigation and energy regulation.

The recent approval of a Clean Energy Certificates market in Mexico is part of the broad Energy Reform in the country since the end of 2013. Clean Energy Certificates create an incentive for new investment and a source of extra income for green energy producers in the electricity market. Mexico’s scheme is based on similar Green Trade Certificates schemes, which promote investment in renewable energy by setting quotas on electricity producers and requiring certain electricity users to buy certificates. This article briefly looks at the early adopters, Sweden and later Norway, where a similar scheme has been implemented since 2003. The Nordic scheme, along with other policy measures, has proven effective in increasing the share of renewables. This article analyzes the Mexican Energy Reform’s approach to renewable energy, and explains how Mexico can learn from its Swedish and Norwegian counterparts.

Mexico’s recent energy reform portends a new era of private engagement in the oil and gas sectors. According to government officials and industry leaders, the opening of energy reserves for private development will spur economic growth and establish the country as a leader in the energy arena. This article examines whether the reforms could also lead to community-led growth in the renewable energy sector, specifically in Oaxaca, Mexico, which has been identified as one of the windiest places in the world and is currently already the site of extensive wind energy development. Building on my prior work exploring the impact of renewable energy development on indigenous communities in Oaxaca, this article presents a framework to explore the aspects of the energy reform that could lead to greater participation in renewable energy development by communities who have historically disproportionately borne the brunt of the country’s energy development in the country. This article utilizes the theory of energy justice, which incorporates principles of environmental justice and climate justice as well as energy democracy, to consider whether opening the Mexican energy market to private participation and increased competition in the electricity sector could render communities more resilient in the face of climate change and better able to meet their energy needs.

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