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Mexico's state-owned gas and energy firm accepting help from foreign investors

Two male employees are carrying a large barrel of oil.
10 Mar 2014

Mexico has recently stopped its state-run monopoly on its oil fields and is now beginning to bring in foreign investors, according the Dallas News. Such a plan could dramatically improve Mexico's energy supply and make power in the country much cheaper, which will improve foreign manufacturing investment.

"I think we should aspire to have hundreds of companies present, partnering with Mexican capital," said Emilo Lozoya, Pemex CEO, in a speech at the IHS CERAWeek energy conference in Houston.

Pemex previously had been the sole operator of Mexico's oil fields. The president of Mexico, Enrique Peña Nieto, signed a bill that opened up the oil fields to other companies in an effort to improve oil production and bolster the economy. Production had fallen by more than 20 percent before the fields were opened up to other investors. This has raised the price of electricity, which hurts manufacturing. According to 1200 WOAI, a local news station in San Antonio, Texas, Pemex has found itself unable to use new technologies such as hydraulic fracturing in order to extract natural gas and oil resources. In fact, 600 billion cubic feet of natural gas was imported from the U.S. last year.

"Mexico has significant untapped shale oil and gas deposits within its own borders and has the potential to have significant economic impact," said Economist Thomas Tunstal at the University of Texas at San Antonio Institute for Economic Development in a discussion with Mexican business leaders.

Lozoya has pledged to increase spending and look for foreign partners who are considering expanding to Mexico. He plans to bring his company closer to a privatized model, and boost capital spending to $28 billion in 2014, which is an increase of $2 billion year-over-year. Additionally, he plans to begin drilling for oil offshore and in shale fields that foreign companies will be better able to handle.

Mexican lawmakers plan to strike deals that will make it more worthwhile for oil and gas companies to move to Mexico.

"There are many opportunities in the world, between South America and Africa and the Arctic," said Javier Treviño Canut, a close ally of President Nieto, said in January. "So how are we able to attract the oil companies? That's going to be the key challenge."

By reducing the price of oil and gas, Mexico will be able to better lower the cost of electricity. When electricity is cheaper, Mexico will become an even better option for  companies that wish to begin manufacturing in Mexico. The opportunities for offshoring continue to expand in Mexico as the country continues on its path of energy reforms that streamline the investment opportunities for foreign manufacturers.

Shale formations also looked at as a possibility for energy expansion
According to WOAI, UTSA researchers have told business leaders in northern Mexico that the Eagle Ford shale formation, a major location for oil, continues further south into Mexico, which may provide the country with an additional source for energy.

"Unconventional shale oil and gas exploration is having a significant impact on global markets," Tunstall told Mexican business leaders. "The U.S. now produces more oil than it imports for the first time since 1995. Texas has produced more crude oil recently than it has in 30 years. This is largely the result of increased production coming from South and West Texas in the Eagle Ford and Permian Basin."

According to Tunstall, the economic reforms underlying Mexico's privatization of its oil and gas exploration and production operations will make it easier for U.S. businesses to invest in Mexico.

Manufacturing companies seeking to take advantage of this by expanding to Mexico may find it difficult to navigate the complex system of rules having to do with international politics. An offshore shelter will help by handling all of those things for the manufacturer.

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