David Goldwyn is an energy expert and served as a special
envoy for international energy affairs at the State Department
from 2009 to 2011.
Our continent’s energy future has perhaps never been brighter.
Thanks to the historic energy reform just ushered through Mexico’s Congress by President Enrique Peña Nieto, our southernmost neighbor is playing its part — and then some.
President Peña Nieto has been busy reforming his country for the 21st century and the comprehensive energy reform nearing approval is perhaps his greatest achievement to date. It is difficult to overstate the promise of this reform, which would end the seventy-year monopoly of the state-backed energy giant Pemex, and introduce private investment into every segment of Mexico’s hydrocarbon sector, from production to transportation to refining. Pemex lacks the capital, expertise and equipment to productively extract much of Mexico’s oil and gas reserves. If implemented properly, this reform will spur a flood of private investment; the best, most cutting-edge energy firms in the world will compete for a stake in Mexico’s energy sector—and the Mexican people will reap the benefits.
With liberalization will come increased transparency and a stronger civil society. Mexico’s regulatory agencies will operate with more independence and authority post-reform, when the state-run Pemex no longer monopolizes the energy sector. This reform will also create a new set of autonomous, independently funded regulators for licensing, safety and environmental protection. By separating national energy policy from industry supervision, Mexico will progress further toward a modern and transparent regulatory state.
If all goes according to plan, Mexico’s future is indeed bright, and so is North America’s. Much, however, remains to be done. The President and his cabinet must first be careful to manage expectations with the Mexican people, who may expect instant growth in jobs and revenue. The state has controlled Mexico’s natural resources for the better part of a century; its sleepy energy sector has much to gain from private investment, but the benefits of will not materialize overnight. President Peña Nieto must strike a balance between optimism and realism; he must inspire the public’s support without setting unattainable goals.
Meanwhile, his administration must navigate Pemex’s transition away from monopoly. Pemex is a de facto government agency, but it is also one of Mexico’s largest employers and a source of pride for the Mexican people. The increased competition engendered by energy reform will ultimately make Pemex leaner and more profitable. In order to get there, however, the energy giant will need to learn to behave more like the private companies it will soon share the marketplace with.
Of course, the greatest challenges Mexico will face involve the marketplace itself. After years of state-monopoly, Mexico must create the infrastructure, regulation and standards for a private hydrocarbon marketplace that, for nearly seventy-five years, simply did not exist. This means building an effective regulatory state that can oversee the activities both of Pemex and of the myriad of private firms soon to enter Mexico. It means giving risk-taking private companies, including firms from Mexico’s North American neighbors, a real stake in Mexico’s energy reserves, so that these firms have the incentive to devote resources and capital.
Perhaps most of all, it means trusting the market, and tolerating the inevitable setbacks—like in any endeavor, not every project will bear instant profits—without panicking and ratcheting back the reforms.
Mexico, which has also enacted major education, labor and fiscal overhauls, has shown itself to be one of the few nations on earth still capable of passing serious reforms. President Peña Nieto’s first year in office has seen a string of achievements that Mexicans can be proud of (and a record of legislative success that President Obama must envy.) This latest reform is far from finished, but the signs are positive, and the hopes of the continent are high, as well they should be.
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