Mexico’s energy reform could spell lower energy prices for businesses in the North American nation, according to analysts.
The country’s energy sector has had a state monopoly for decades but last week it proposed foreign energy companies should be able to invest in Mexican projects such as drilling in the Gulf of Mexico.
President Enrique Peña Nieto has suggested the changes “will lower the price of electricity and gas” and this could be the case for businesses but less so for homeowners, suggest energy experts at EY.
Brad Hartnett, Senior Analyst for Power & Utilities at EY believes other reform – such as increased competition for domestic energy supply – is most likely to bring down bills.
He told ELN: “Gasoline prices in Mexico are already heavily subsidised so it remains to be seen whether the reforms could lower prices at the pump but expansion of domestic oil production could alleviate the need to impose such subsidies. In addition to encouraging private sector investment in the oil and gas sectors, the proposed reforms seek to open up the electricity sector by allowing generators to sell directly to energy consumers.”
Mexican household energy bills are subsidised so this might be a bigger boost for businesses, he went on: “While households already receive subsidised rates, businesses in Mexico have some of the highest electricity rates in the world so this is an area where competition could make a real difference in lowering costs.”
He added: “Lower electricity prices could also be realised through an expansion of natural gas fired generating capacity fuelled by cheap domestic sources of natural gas, including shale gas deposits.”
Any impact on energy prices are “likely to remain localised” in Mexico, said Mr Hartnett: “To the extent that significant new supplies of oil and gas in Mexico are developed, it could contribute to more price stability (less volatility) and reinforce the American region’s emergence as a dominant player in global oil and gas markets.”
Before any of this can happen, reform itself needs to survive passing through Mexico’s governmental system.
Mr Hartnett concluded: “The passage of constitutional amendments and supporting legislation through the Mexican congress could become protracted and pose challenges to the successful implementation of meaningful energy reform.”