Mexico’s Energy Reform: A Major First Step on a Very Long Journey

Mexico’s Energy Reform: A Major First Step on a Very Long Journey

Mexico’s recently enacted energy reform bill marks an important first step on the long path of transforming the country’s energy sector. Now that the constitutional changes have been ratified by a majority of states, the real work of drafting the enabling legislation, creating new institutions and profoundly changing many existing ones now begins. All of this will take time, and there will be much to debate along the way. The reform’s ultimate success will depend on maintaining political support while managing public expectations during the long slog of implementation.

While Mexico’s challenges in implementing the reform are complex and many, it is imperative that they be overcome as quickly as possible. Investment in new power plants and gas pipelines will slow as investors wait for further details regarding the new rules of the game. Demand for electricity and natural gas will continue to grow, however, putting increasing strain on Mexico’s ability to deliver. This creates a small and closing window to implement the planned market changes.

The reform affects the entirety of Mexico’s energy value chain, from power generation, transmission and distribution through the storage, transportation and distribution of natural gas, oil, oil products and petrochemicals, not to mention the exploration for and production of oil and gas resources. The rules and permits authorizing private sector investment and contracting across each of the segments must be established. Standards regulating third-party access to pipelines, power transmission and other logistical infrastructure must be created. Regulations and tariffs affecting hydrocarbon first-hand sales and electricity transmission and distribution must be set. It is a monumental task.

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