Historic Energy Reforms Come to Mexico, Maybe Venezuela Too

Mexico is poised to allow foreign investment in its state-owned oil company, Pemex, for the first time in 75 years. In Venezuela, home to the world's cheapest gasoline, prices are due to skyrocket if President Maduro ends subsidies as he's indicated.
January 5, 2014, 9am PST | Irvin Dawid
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Mexico and Venezuela are the West's two major oil producers whose oil companies are state-owned, or "owned by the people", as their supporters describe it.  Both are experiencing declining production. Change, though of different types, appears to be coming to both nations that may increase oil production and boost federal revenues.

As we posted here in August, Mexico, 'the world's ninth largest oil producer and first to nationalize its oil production, has seen steep production declines as the state-owned oil company lacks (the necessary) capital resources and expertise" to invest in oil production. With "legislation passed by Congress on 13 December and ratified by a majority of Mexican states" and signed by President Enrique Pena Nieto on Dec. 20, the tide may be reversed, as the BBC News indicates.

"This is the beginning of a new history for our country. We have opened the doors for a better future for all," said Mr Pena Nieto.

The historic legislation amends the constitution to "allow foreign investment in oil, gas and electricity," i.e. the energy market has been opened. Christian A. DeHaemer, in his piece in Energy & Capital, "Mexico Oil: Full Gusher" predicts that "(f)racking, the same technology that is quickly turning the United States into the world's biggest producer of oil and natural gas, will soon transform Mexico as well."

However, one last potential hurdle to the influx of foreign capital may be a referendum submitted by the Party of the Democratic Revolution, or PRD, that opposes the change which they characterize as privatization, writes Juan Montez of the Wall Street Journal.

And in Venezuela, the world's thirteenth largest oil producer, President Nicolas Maduro indicates he will reduce, if not eliminate, the government's substantial subsidy of oil prices that keeps gasoline prices at a nickel a gallon, though it's obtained on the black market for a penny a gallon, write the staff of The Truth About Cars (TTAC). We posted here in March that under Maduro's predecessor, Hugo Chávez, "[e]nergy experts say his gasoline subsidies doubled domestic consumption, cutting deeply into exports in addition to "draining the budget of $1.5 billion annually."

While the article's title suggests gas prices could rise to $1.60 gallon, they write that "it’s unknown how much Maduro will raise the price." In an AP article, "Venezuela car owners unfazed by planned fuel hike", the reporters suggest that as long as the amount of the increase isn't publicized, the people are not worrying.

Gas prices in Venezuela have been unchanged for 20 years, as has been the federal gas tax in the U.S. While subsidizing gas prices is different than subsidizing transportation expenditures because of insufficient gas tax revenue ($41 billion since 2008, and $14 billion in 2015, as noted here), there are analogies to consider. For example, both subsidies drain federal budgets and keep gas prices artificially low, which increases driving.

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Published on Friday, December 20, 2013 in BBC News
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