Mexico's Newly Proposed Oil Law Would Cement The Americas As The World's Most Important Source Of Supply

Mexican flags in mexicoREUTERS/Tomas BravoA couple admire Mexico flags used through its history at the Obispado lookout in Monterrey September 14, 2010. Mexico is preparing lavish celebrations this week to mark the 200th anniversary of the day rebel priest Miguel Hidalgo set it on a path to independence.

Mexico recently announced it would probably begin opening its oil fields to private foreign investment for the first time in 75 years.

A proposed change to Mexico’s constitution would upend the country’s defacto nationalization of its fossil fuel reserves.

UBS analyst Jon Rigby thinks this only adds to the bullish oil story that continues to develop in the Americas.

The bill will have to be approved by Mexico’s senate, but it’s believed President Enrique Pena Nieto has enough votes to push it through.

The hope is that new investment would grow oil output 20% to 3 million barrels a day and gas output 38% to 8 billion cubic feet per day by 2018.

On the surface, that’s a lot for Mexico, but not for overall global balances.

However, Rigby argues there is actually an immediate impact: It will accelerate shifting the center of gravity for global fossil fuel production from the Middle East to the Americas:

In terms of long-term balances and the effect on the global outlook, an opening up of the Mexican upstream would further cement the Americas as the most important source of supply growth in years to come. In our outlook, we expect the US, Canada and Brazil to make up the bulk of new oil production this decade, driven by shale oil, oil sands and pre-salt barrels respectively. The only other truly major source of new oil is expected to be Iraq.

Rigby pulls data showing production rates when Mexico went through its first big ramp up in the ’70s:

They write:

…on the basis of what are expected to be substantial unmapped reserves in both Mexico’s deepwater and in shale formations onshore, there is significant potential for further growth in subsequent years. Indeed, a look at Mexico’s original ramp-up in oil production in throughout the 1970s show that strong growth rates were achieved, albeit not nearly as strong as seen in the recent growth spurt in US shale oil, for instance.

So, it’s a significant development that is likely to become an even bigger deal down the line.

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