December 8, 2013 / 12:29 AM / 4 years ago

Factbox: Mexico's cross-party energy reform proposal

MEXICO CITY (Reuters) - Senators from Mexican President Enrique Pena Nieto’s centrist Institutional Revolutionary Party (PRI) and the conservative National Action Party (PAN) presented a broad energy reform on Saturday aimed at lifting the country’s lagging oil, natural gas and electricity interests into the modern age and driving growth in Latin America’s second-largest economy.

If approved by Congress next week, as is widely expected, the proposal would represent Mexico’s most ambitious overhaul of its state-run energy monopolies since it expropriated the assets of British and American oil companies in 1938.

The proposal would end the exploration and production monopoly held for decades by state-run oil and gas company Pemex, as well as the monopoly status currently held by national electric utility CFE.

Below is a list of the main proposals in the bill:

The proposal would keep Mexican oil and gas 100 percent in state hands but envisages rewriting articles 25, 27 and 28 of the constitution to allow profit- and production-sharing contracts, as well as licenses.

While it does not go as far as including concessions among the list of mechanisms that would be offered to private oil companies to exploit Mexican crude, which was widely seen as the best case scenario for companies like BP and Exxon Mobil, the licenses sketched out in the proposal are very similar to concessions.

The proposal seeks to rewrite article 28 of the constitution in order to put an end to government monopolies in the operation of oil and gas fields, as well as in power generation.

The proposal would keep government control over transmission and distribution of electricity.

Mexico would create a new sovereign oil fund, overseen by the country’s central bank, that would be charged with administering the proceeds of oil and gas development, with the exception of taxes paid to the government.

Below are facts about Mexico’s oil industry and economy:

Successful implementation of the proposals would result in an additional 1 percent of growth by 2018 and 2 percent by 2025, the government has said.

Mexico is the world’s 10th biggest producer of crude oil, according to OPEC data. Output has fallen by a quarter since hitting a peak of 3.4 million barrels per day in 2004.

The country is also a top oil exporter to the United States but has to import nearly half of its gasoline due to a lack of domestic refining capacity.

The United States is still by far Mexico’s largest oil export destination, but shipments have halved since 2006 to less than 850,000 bpd this year, according to U.S. government data. That is the lowest rate in two decades due to both declining Mexican production and rising U.S. output.

Pemex places its long-term hopes of boosting production on the deep waters of the Gulf of Mexico, where it believes there are up to 29 billion barrels of crude oil equivalent, more than half the country’s potential oil resources.

Mexico’s prospective shale gas potential, 545 trillion cubic feet of recoverable gas resources in deposits that may contain rich pockets of both natural gas and oil, place the country as sixth for potential shale resources according to U.S. Energy Information Administration data.

The Mexican government relies on oil revenues to fund about a third of the federal budget. The heavy tax burden has limited Pemex’s ability to fund new projects and lift output. The government warns that Mexico could become a net oil importer as early as 2018 if major new oil finds cannot be developed.

Pemex was formed in 1938 when President Lazaro Cardenas expropriated British and U.S. oil companies’ Mexican assets to forge one of the world’s largest state-run oil monopolies.

In recent years, Pemex has struggled under a weighty fiscal burden, corruption, politicking and oil theft. Since 2011, Mexican crude oil output has been surpassed by Iraq, Kuwait and the United Arab Emirates, OPEC data shows.

Reporting by David Alire Garcia; editing by Jackie Frank

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