This year Mexico has ended its 75 year ban on foreign investments in its energy industry. Mexico’s President Enrique Pena Nieto is set to reform his nation’s oil, gas and electricity industry and its national oil giant Pemex.
First, we must understand the difference between a regulated and deregulated market. A regulated market is where there is only one main company responsible for the entire infrastructure. In the electricity market, the utility must purchase electricity from companies that generate it, and is responsible for selling and distributing it to its customers as well.
In a deregulated market, additional parties are involved. The utility still owns the infrastructure, but now, its only responsibility is to distribute the electricity. Deregulated markets permit electricity providers to compete and sell electricity directly to consumers.
The benefit of a deregulated market is that it boosts competition among suppliers, which leads to lower prices and the opportunity for customers to find the best deal.
Mexico is already a significant player in the oil industry, accounting for 3.5% of global oil production in 2012, according to BP’s statistical review in 2013. It also has several shale oil fields, some that share a border with the US which require significant investment. Deregulation potentially opens up some of the world’s largest remaining untapped oil reserves to private companies.
Mexico’s declining oil production, or at least its ability to get oil to market, can be attributed to using trucks for transport. Creating a pipeline infrastructure, which it plans to do, will allow Mexico to become a top 5 global exporter within the next few years.
Iberdola, owners of Scottish Power and Spain’s largest utility, has committed to investing $4 billion over the next four years. This investment will include power generation in the form of combined cycle natural gas plants and wind farms.
25% of Mexico’s energy generation comes from renewables, largely in the form of geothermal power. This will be further encouraged as Mexico will look to reduce domestic oil consumption in order to ensure higher revenues on oil exports.