Pemex and the challenge of energy modernization: an analysis of strategies for reforming the oil industry in Mexico

Abstract

Today, Mexico is struggling for the implementation of structural reforms that could provide for stable economic development. One of the federal government’s major tasks is the modernization of the energy sector in order to provide the country with adequate and sustainable sources of energy, particularly regarding petroleum and its derivative products. The public debate on the restructuring process of the domestic oil industry is inextricably related to the state’s responsibility of procuring a solid budgetary income while simultaneously ensuring suitable fiscal proceeds without having to depend so much on oil revenues derived from Pemex, the state-owned oil company of Mexico. How can the Mexican government simultaneously address the structural issues of Pemex while confronting the challenge of energy modernization? This research project analyzes the main structural issues that affect Pemex’s current performance in order to understand why energy modernization has not been fully accomplished in Mexico. I argue that Pemex has become a stagnate state oil company because (a) its legal framework does not reflect the current needs of the Mexican oil industry, (b) its political context has not allowed for the implementation of innovative oil reforms, and because (c) its economic situation is faltering due to decapitalization, indebtedness, and high-risk massive investment in the upstream level. This information allows for another major task: to find out what set of policy strategies the government should focus on in order to ensure both the viability of its oil industry and the modernization of the energy sector as a whole. Thus, the primary objective of this project goes beyond a simple depiction of the problem. Using historical research and document-based case study methodology, I explain the legal, political, and economic factors that have led Pemex to stagnation, and explore what alternatives can be undertaken to improve the state oil company’s situation in order to pave the way towards energy modernization in Mexico.