Pemex was established in 1939 as Mexico’s national oil company. Now, in an unprecedented break from the last 75 years, Mexico is opening its energy sector to foreign and private investment. Mexico’s energy reform could boost economic growth in Houston.
The liberalization of Mexico’s energy sector already faces threats to its success. Bureaucratic entanglements, the falling price of crude oil, and concerns about security present challenges to this fledgling endeavor. However, the potential benefits for the Mexican economy and investors are substantial. In addition to introducing competition to Mexico’s stagnating oil and gas industry, this reform has the potential to stimulate Houston’s economy and energy sector in the coming years.
Trade between Houston and Mexico topped $30 billion in 2012, and over 1,100 Houston companies reported business or trade ties with our southern neighbor. These connections mean that Houston is well positioned to provide the experience, services and materials that Pemex — as well as foreign companies operating in Mexico — will soon need.
A report by the Greater Houston Partnership (GHP) and HSBC estimates that Houston will export an additional $2.85 billion of oil field equipment to Mexico to fulfill the needs of Pemex and other foreign companies. In addition to these material needs, foreign investment in Pemex alone is projected to increase from $24.3 billion in 2014 to $62.3 billion in 2025. This staggering increase in investment, if even partly realized, could allow for the development of previously untapped Mexican oil fields. HSBC senior vice president Lori Vetters stated that she could see this growth in Mexico’s energy sector “creating close to 30,000 Houston jobs over the next several years.” It could also provide local jobs for unemployed and underemployed Mexicans. The potential impact of these Houston jobs is substantial — but what about the quality of these jobs?
This June, the U.S. Bureau of Labor Statistics reported that there are an estimated 4.5 million jobs currently sitting unfilled across the country. Most often, these jobs remain unfilled because they are dangerous, require specific qualifications, or are poorly compensated. Mexico’s energy revolution may bring about 30,000 new jobs, but what are these jobs, and what skills will be required to fill them? Answering these questions requires a quick analysis of the new opportunities that the energy revolution in Mexico will create.
Pemex has traditionally focused on developing Mexico’s lucrative but aging conventional hydrocarbon reserves in and around the Gulf of Mexico. Deep-water resources in the Gulf of Mexico stand to be the most profitable but also require a great deal of time, technology and expertise to develop. Large international companies like ExxonMobil and Chevron have already shown interest in these areas.
There is the potential that Mexico will open up tracts of land for foreign producers to develop through the use of hydraulic fracturing, which is traditionally within the domain of smaller, more adaptable energy firms.
The expertise, equipment and infrastructure that Mexico’s liberalized energy sector will require for these operations, especially deep-water drilling and hydraulic fracturing, are expected to create jobs in petrochemical production, plastic production, iron and steel manufacturing, and oil field equipment production. Human capital in the engineering, service and export fields will also be required. The GHP-HSBC report outlines job creation in Houston for every $100 million in exports related to these industries.
Source: Greater Houston Partnership and HSBC, “Houston’s Next Boom: Exporting Innovation”
These jobs are diverse in terms of the compensation they offer and the expertise they require. However, typically both general and specialized jobs in the energy field are well compensated (an entry-level drill deck worker earns, on average, US$47,000 per year), and many manufacturing positions provide fair wages for low-skilled workers. The diverse nature, fair salaries and low entry barriers for many of these potential jobs make these opportunities exremely valuable for the Houston economy.
Mexico’s energy reform is by no means certain to succeed; the falling price of oil, bureaucratic complexities and security issues are all concerns that must be addressed. With that said, the energy revolution unfolding south of the border may be the key to the expansion and development of Houston’s energy and manufacturing industries in the coming decade.
Alex Haer is an undergraduate intern at the Baker Institute Mexico Center. He is a student at Rice University majoring in political science. His areas of interest include international relations and business.