Thanks to Peña Nieto's reform, the Mexican government projects that daily oil production could increase from 2.5 million barrels today to 4 million barrels in 2025. Figures from Pemex indicate that Mexico's total proven oil reserves stand at just over 10.1 billion barrels of oil equivalent (BOE), but they also suggest that more than three-fourths of total Mexican oil and gas reserves fall into the category of "prospective" (or unproven) reserves, including some 30 billion BOE worth of deepwater reserves in the Gulf of Mexico. Obviously, no one knows the exact number for sure; but if the Pemex estimates are relatively accurate, Mexico could indeed become a genuine heavyweight player in the global energy arena.
Does the reform pose any dangers to Mexico? Sure. A flood of foreign investment could conceivably lead to an overvalued peso, which would hurt Mexican exporters. Also, the Mexican government will have to reform its tax structure and become less dependent on Pemex revenue, which currently accounts for one-third to 40 percent of Mexico's national budget. The underwhelming fiscal package that Mexican lawmakers passed in late October will modestly expand the tax base, but more ambitious, growth-oriented reforms are still needed.
By now, Mexicans are wearily familiar with false dawns and dashed expectations. When the North American Free Trade Agreement (NAFTA) took effect on January 1, 1994, they were promised that a wave of prosperity would follow. About a year later, however, the Mexican financial system collapsed. Similarly, when the PRI finally lost the presidency in 2000, ending 71 years of often authoritarian rule, Mexicans were told that democracy would help their nation achieve "first world" status. But then, in December 2001, China joined the World Trade Organization, and its subsequent emergence as a global export powerhouse did great damage to Mexican manufacturers, who found it very difficult to compete with their low-cost Chinese counterparts. More recently, right around the time that foreign journalists and investors began hailing Mexico as a potential "Aztec tiger," the nation's economy slowed dramatically.
So it's understandable if Mexicans are a bit skeptical of all the enthusiasm surrounding their new energy law. After all, reforming the oil and gas industries won't curb drug-related violence, end rampant corruption or fix Mexican labor markets. And yet, if Peña Nieto's reform is properly implemented, Mexico may finally achieve the robust, sustainable economic growth that has for so long proven elusive. That would be worth celebrating.
