Mexico’s August oil production figures, which were released Friday, will doubtless put smiles on the faces of government officials and legislators alike.
They shouldn’t. Production came in at just over 2.55m barrels a day, up slightly from July. That’s the latest reminder that Mexico, which is one of the world’s top 10 producers, has at last halted the decline that began in 2004 when production reached a peak of 3.4m barrels a day.
Given Mexico’s tiny tax base and the fact that oil contributes more than one-third of all government revenue, the stabilisation will calm any fears about the country’s fiscal outlook. But what will it do for the chances of reform in the energy sector?
Mexico has one of the most restricted and anachronistic energy-sector regimes in the world – even more so than that of Cuba – and Pemex, the state oil monopoly, is barred from entering into joint-risk contracts with third parties.
The result has been minimal investment and a dearth of exploration in the Gulf of Mexico, where the vast majority of the country’s reserves are thought to lie deep under water in areas that require both the kind of money and expertise that Pemex lacks.
True, the country recently awarded contracts to private companies to operate three oil fields. But the contracts were for very small fields, and hardly represented the kind of legislative overhaul Mexico needs.
The problem with oil production stabilising – and with solid international oil prices – is that there is now little incentive for legislators to do anything to make the sector more dynamic. While other countries in the region, such as Brazil and Colombia, have revolutionised their once-sluggish sectors by opening them to private investment, Mexico has done almost nothing.
Instead, it has just muddled through. Politicians constantly duck the issue of change, arguing that there are too many taboos surrounding the subject to make real reform viable.
When production was tanking, many observers thought that the oncoming “crisis” would force legislators into action. They were right. Now that things are stable, that opportunity has almost certainly disappeared.