A member of NAFTA and the OECD, Mexico is a major non-OPEC oil producer and has the world's sixth largest oil company (Pemex). Over half of Mexico's net oil exports go to the United States.

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GENERAL BACKGROUND

Mexico's economy appears to have recovered from the recession triggered by the December 1994 peso crisis. The recession bottomed out in the third quarter of 1995, and the economy experienced real economic growth of about 5 percent in 1996. Mexico's economic recovery efforts received $50 billion in multilateral assistance, including $20 billion from the United States. Mexico repaid the United States in full in January 1997 (ahead of schedule), but still owes a balance of $11.5 billion to the International Monetary Fund. Mexico's economic objectives for 1997 include economic growth of at least 4 percent and lower inflation (15 percent). State oil company Petroleos Mexicanos (Pemex), a major player in the economy, plans to invest a total of $6 billion in 1997 (nearly twice as much as in 1996).

The United States is Mexico's major trading partner and the country's primary source of foreign direct investment (about half of the total for the 1994-1996 period). This relationship has been fostered through official mechanisms including the U.S.-Mexico Binational Commission (composed of U.S. cabinet officials and their Mexican counterparts) and the North American Free Trade Agreement (NAFTA). Implemented in January 1994, NAFTA has liberalized Mexico's trade with the United States and Canada. Mexico has also been a member of the Organization for International Cooperation and Development (OECD) since May 1994.

Mexico's privatization program is expected to attract investment of nearly $43 billion over the 1995-2000 period. This includes an estimated $10 billion for the electric power sector, $3.5 billion for natural gas transportation and distribution, and $3 billion for petrochemical plants. Other initiatives focus on ports, airports, railroads, toll roads, and long-distance and international telephone service.

Domestic policy concerns include charges of corruption, particularly with respect to drug interdiction efforts, and continuing social upheaval -- particularly in Chiapas, where a peasant rebellion has flared periodically since 1994. Protests at onshore oil fields have occasionally affected, but not seriously disrupted, production in the Chiapas-Tabasco area.

OIL

In March 1997, Mexico released its first independently audited petroleum reserves estimates, which indicate a reduction of more than 30 percent in proven offshore reserves in the Bay of Campeche. Comparable studies of Mexico's other hydrocarbon zones are planned over the next two years. The study, conducted by engineering firm Nertherland, Sewel and Associates, involved a field-by-field assessment according to international standards. According to these standards, proven reserves include only those known reserves which can be economically produced using current operating techniques. The results of the initial study of reserves in the Bay of Campeche indicate Mexico's total proven reserves are lower than the 49.8 billion barrels estimated as of the beginning of 1997; however, the study's results do not affect estimates of the country's potential hydrocarbon resources, which include reserves that may not yet be commercially viable using current techniques. Furthermore, even if future studies result in a comparable reduction in proven reserves in other areas, Mexico's proven oil reserves will still rank as the second largest in the Western Hemisphere (after Venezuela).

Nationalized since 1938, the oil industry provides a major source of revenue for the country. Pemex is the world's sixth largest oil company and the single most important entity in the Mexican economy. Pemex enjoys a monopoly over exploration and extraction of all hydrocarbons, a position guaranteed by Article 27 of Mexico's Constitution (which reserves ownership of hydrocarbon resources to the state). Foreign participation in the upstream sector is limited to service and performance contract arrangements and turnkey drilling contracts. In March 1997, President Zedillo reaffirmed that Pemex will remain a national Mexican company.

Mexico produces three grades of crude oil: heavy Maya-22, which accounts for nearly half of total production; light, low-sulfur Isthmus-34 (about one-third of total production); and extra-light Olmeca-39 (about one-fifth of total production). Most (about three-fourths) of the production comes from offshore sites in the Campeche Sound of the Gulf of Mexico, which contain about 15 billion barrels of proved crude oil reserves (according to Mexico's first audited reserves estimates, which were released in March 1997). About half of all crude oil production is exported.

Crude oil production increased by over 9 percent in 1996 -- the first significant increase in oil production for over 10 years. Pemex plans another 8 percent crude oil production increase in 1997 (to nearly 3.1 million barrels per day, of which about 1.7 million barrels per day is slated for export). Current development efforts focus mainly on the offshore Cantarell heavy oil project in the southern part of the Bay of Campeche and the Tabasco Littoral (an offshore area where Pemex has discovered light crude oil and natural gas).

Refining and Petrochemicals

In the downstream oil sector, Pemex maintains monopoly control over refining of crude oil and production of eight basic petrochemicals (butane, carbon black feedstocks, ethane, heptane, hexane, naphtha, pentane, propane).

In the fall of 1996, Pemex delayed and revised its program to privatize secondary petrochemical plants, which produce 13 types of petrochemicals at 61 plants located mainly in 10 complexes. (All other Atertiary@ petrochemicals have already been privatized). Under the current program, Mexico has begun to set up separate subsidiaries for each complex and has announced plans to sell up to 49 percent of each beginning in August 1997. (The previous plan would have allowed the sale of 100-percent interest).

Mexico's domestic refineries are in need of upgrading to produce cleaner burning transportation fuel. However, the only major project involves an investment of $1.2 billion over 3 years to reconfigure the Cadereyta refinery. No new refineries are planned. An important source of unleaded gasoline is the 255,700 b/d Deer Park (Texas) refinery -- a $1 billion/year joint venture between Pemex and Shell Oil Co. of the United States. Pemex supplies heavy Mayan crude to the refinery and imports unleaded gasoline produced at the refinery.

NATURAL GAS

Until recently, Mexico has not given high priority to the development and use of its natural gas reserves, which are found in association with oil and are also controlled by Pemex. A major constraint has been the lack of investment in pipeline infrastructure for transporting gas over long distances (most production is in offshore and southern onshore regions while population is concentrated inland and in the north). Natural gas is slated to play a more important role in the future as new combined cycle power plants are built, existing power plants are converted to natural gas.

Most of Mexico's natural gas is produced onshore (primarily in the Chiapas and Tabasco regions) in association with crude oil production. About one-third comes from offshore. Natural gas is also produced in the northeastern part of the country at the country's largest non-associated gas field (Burgos), where Mexico plans to invest $2 billion to double production from an anticipated 500 billion cubic feet in 1997 to 1 billion cubic feet by 2000. Natural gas production was seriously curtailed in June 1996 by an accident at the Cactus gas processing facility. Supply shortfalls were made up by imports of U.S. natural gas via pipeline interconnections at Ciudad Juarez and Reynosa.

According to an April 1997 Energy Ministry policy document (AProspects For the Natural Gas Market 1996­2005"), investment in Mexico's natural gas market is expected to reach $1.4 billion in the 5 years leading up to 2000. Of that amount, $900 million is expected to be invested in natural gas distribution in Mexico City, and $103 million will be invested in natural gas distribution in the central Bajio region comprising Leon, Salamanca, Celaya and Irapuato. The Ministry expects production to increase by an average of 10 percent annually over the 1996­2000 period. Domestic demand is expected to grow faster than production, at an average annual rate of 12 percent between 1996 and 2000.

Legislation enacted during 1995 opens natural gas transportation, storage, and distribution to private (including foreign) investment and allows private companies to import and export natural gas. Mexico's Energy Regulatory Commission (Comission Reguladora De Energia, CRE) oversees implementation, including permits. Private investment in the natural gas sector is expected to total $3.5 billion over the 1995-2000 period.

The CRE has been busy defining natural gas distribution zones to be opened to private investment and conducting the bidding process for distribution permits. In August 1996, a binational consortium (DGN de Mexicali, which is led by Southern California Gas Company and San Diego Gas & Electric) was granted the first natural gas concession awarded in Mexico, to deliver natural gas in the Mexicali, Baja California area. In March 1997, the same consortium was granted a permit to distribute natural gas in the Chihuahua region. In April 1997, Compania Nacional de Gas, S.A. (Conagas) was awarded a permit to distribute natural gas in the Piedras Negras region of the northern state of Coahuila. In all, about 30 cities are planning to install natural gas distribution systems.

Natural gas pipeline projects are also receiving private investment under Mexico's more open investment policy. In October 1996, U.S. company Midcon became the first foreign company to win a natural gas transportation permit. Midcon will build and operate a 93-mile pipeline to transport up to 270 million cubic feet per day from the U.S. border to Monterrey. Two other major projects have been awarded. The first, a joint venture between El Paso Energy Corporation and Pemex, will transport U.S. natural gas from an existing El Paso Natural Gas Co. pipeline near El Paso, Texas, to the Samalayuca power plant in Chihuahua, Mexico (scheduled for completion in December 1997). The second is a 435-mile pipeline in Mexico's Yucatan peninsula to be built by a consortium led by Transcanada Pipelines Ltd. under a 26­year build-own-operate contract. The pipeline, with planned capacity of 370 million cubic feet per day, will originate at Ciudad Pemex in the state of Tabasco and provide natural gas service to power plants and other industrial customers in the cities of Campeche, Merida, and Valladolid. Construction is slated to begin in 1998 and the line is expected to be in service by September 1999.

COAL

Coal provides only about 4 percent of Mexico's total energy requirements. The majority of the country's coal reserves, which are low quality due to their high ash content, are located in Coahuila. U.S. company Mission Energy, which purchased the previously government-owned company Minera Carbonifera Rio Escondido (MICARE) when it was privatized, is now the largest producer. Domestic supplies are augmented by a small volume of imports from the United States, Canada, and Colombia.

ELECTRIC POWER

Like Pemex in the oil and gas industry, state power company Comission Federal de Electricidad (CFE) for years has enjoyed a monopoly in the electric power sector. Reforms instituted in 1992, however, allow independent power producers and cogenerators to sell power to CFE.

Nearly 70 percent of Mexico's current electric generating capacity consists of thermal power plants (primarily fuel oil). Hydroelectric plants account for about one-fourth of the total, and Mexico's one nuclear plant about 4 percent. About 2 percent of capacity consists of geothermal and other energy sources (including one wind-powered plant). Under Mexico's industrial energy policy, a significant percentage of CFE's thermoelectric plans are slated for conversion to natural gas by 2005.

CFE estimates that Mexico's electric power sector will require total investment of $22.1 billion between 1996 and 2004 for an additional 9,000 megawatts of electric generating capacity and associated transmission and distribution projects.

Two major projects have already been awarded. The Samalayuca power plant, which will burn natural gas imported via pipeline from the United States, is being built by a group of U.S. and Mexican companies (including General Electric Power Systems, General Electric Capital Services, El Paso Energy Corporation, and Grupo Ica of Mexico) under a build­lease­transfer framework. The $647 million project is partly financed by loans from the Inter-American Development Bank and the U.S. Export-Import Bank. In January 1997, CFE named a group comprising AES Corp., Nichimen, and Grupo Hermes the winner of a contract to construct, operate and maintain the 440­megawatt Merida III plant in Yucatan state. Formal solicitations have also been issued for four independent power projects, to be built on a 15-year build-lease-transfer basis: Chihuahua (450 megawatts, gas and diesel), Rosarito (450 megawatts, gas), Monterrey (450 megawatts, gas), and Cerro Prieto (100 megawatts, geothermal).

ENVIRONMENT

In addition to domestic air quality targets established in response to serious pollution problems, Mexico has international environmental obligations under the North American Agreement for Environmental Cooperation (NAAEC), a NAFTA side agreement. Mexico participates with its NAFTA partners in the North American Commission for Environmental Cooperation (NACEC) and is pursuing infrastructure projects along the U.S.-Mexico border. Priority border projects being developed and financed by the North American Development Bank (NADBank) and the Border Environment Cooperation Commission (BECC) address wastewater treatment, drinking water, and municipal solid waste.

Mexico has a 5-year National Environmental Program (1996-2000) which is expected to invest $13.3 million to reduce air pollution in and around Mexico City. The project is intended to serve as an example for other major cities. Mexico has also introduced a federal tax incentive program for purchases of pollution control equipment.

Mexico receives international assistance for its environmental programs, primarily from the World Bank, Japan, and the United States. Major activities include pollution abatement planning and programs in the Mexico City area (covering emission standards development, pollution research support for the Instituto Mexicano del Petroleo and other institutions, and loans for new, clean taxis and small buses), the National Center for Environmental Research and Training (which disseminates information on air pollution and studies industrial hazardous wastes), programs for desulfurizing crude oil at the Tula refinery, environmental infrastructure development, and strengthening northern border region environmental planning and administration at the federal, state, and local levels.

COUNTRY OVERVIEW
President: Ernesto Zedillo (since December 1994; next election in 2000)
Independence: September 16, 1810 (from Spain)
Population (7/96): 95.8 million
Location/Size: Southern N. America/762,000 square miles (nearly three times the size of Texas)
Major Cities: Mexico City (capital), Guadalajara, Monterrey
Languages: Spanish, Mayan dialects
Ethnic Groups: Mestizo (Indian-Spanish), 60%; Amerindian, 30%; Caucasian, 9%; Other, 1%
Religions: Roman Catholic, 89%; Protestant, 6%, Other, 5%
Defense (6/95): Army: 130,000, Navy: 37,000, Air Force: 8,000, Rural Defense Militia: 14,000

ECONOMIC OVERVIEW
Currency: 1 Peso = 100 centavos
Market Exchange Rate (4/97): US$1 = 7.9 pesos
Total Reserves (non-gold) (1/97): $20.3 billion
Gross Domestic Product (GDP, purchasing power parity) (1995E): $721.4 billion
GDP Per Capita (1995E): $7,700
Real GDP Growth Rate (1996E): 5.1%
Inflation Rate (consumer prices, 1996E): 34%
Unemployment Rate (1996E): 10%
Total External Debt (1996E): $158 billion
Current Account Balance (1996E): -$1.4 billion
Major Trading Partners: United States, Canada, Japan, Spain, France, United Kingdom
Merchandise Trade Balance (1996E): $6.7 billion ($16.2 billion with the United States)
Exports : $96.2 billion ($73.0 billion to the United States)
Imports: $89.5 billion ($56.8 billion from the United States)
Major Export Products: Crude oil and products, coffee, silver, engines, motor vehicles, cotton, consumer electronics
Major Import Products: Metal-working machines, steel mill products, agricultural machinery, electrical equipment, aircraft, motor vehicle and aircraft parts

ENERGY OVERVIEW
Energy Minister: Luis Telliz (appointed 10/20/97)
Proven Oil Reserves (1/1/97): 49.8 billion barrels
Oil Production (1996): 3.3 million barrels per day (b/d), of which 2.9 million b/d is crude
Oil Consumption (1996E): 1.8 million b/d
Crude Oil Refining Capacity (1/1/97): 1.52 million b/d
Crude Oil Exports (1996): 1.5 million b/d (1.2 million b/d to the United States)
Crude Oil Export Revenues (1996): $11.6 billion
Natural Gas Reserves (1/1/97): 67.7 trillion cubic feet (tcf)
Natural Gas Production (1996E): 1 tcf
Natural Gas Consumption (1996E): 1 tcf
Natural Gas Imports from U.S. (1996): 32.9 billion cubic feet (bcf)
Natural Gas Exports to U.S. (1996): 13.7 bcf
Coal Production (1995): 10.2 million short tons
Coal Consumption (1995): 12 million short tons
Coal Imports (1995E): 2 million short tons
Recoverable Coal (12/93): 1.3 billion short tons
Electric Generation Capacity (1/1/95): 35 gigawatts
Net Electricity Generation (1995): 145 gigawatt hours
Net Electricity Consumption (1995): 134 gigawatt hours

ENVIRONMENT OVERVIEW
Total Energy Consumption (1995): 5.6 quadrillion btu
Energy Consumption per Capita (1995): 59.5 million Btu (vs. 331.8 million Btu in the United States)
Energy-Related Carbon Emissions (1995): 92.6 million metric tons (1.5% of world carbon emissions)
Carbon Emissions per Capita (1995): 1.0 metric ton (vs. 5.42 tons in the United States)
Major Environmental Issues: Natural fresh water resources scarce and polluted in north, inaccessible and poor quality in center and extreme southeast; raw sewage and industrial effluents polluting rivers in urban areas; deforestation; widespread erosion; desertification; serious air pollution in the national capital and urban centers along U.S.-Mexico border.

ENERGY INDUSTRY
Organization: Oil and natural gas - Petroleos Mexicanos (Pemex), four operating subsidiaries (Exploration and Production, Refining, Gas and Basic Petrochemicals, Secondary Petrochemicals), Petroleos Mexicanos Internacional (PMI); Electric power - Comission Federal de Electricidad (CFE); Natural gas and electric power regulation - Comission Reguladora de Energia (CRE)
Major Ports: Gulf Coast - Dos Bocas, Pajaritos, Tuxpan, Ciudad Madero; Pacific Coast - Salina Cruz, Rosarito
Major Oil-Producing Fields (1995): Cantarell, Abkatun, Ku, Caan, Pol
Major Refineries (1/1/97 Capacity): Salina Cruz (330,000 b/d), Tula Hidalgo (320,000 b/d), Salamanca (240,000 b/d), Cadereyta (235,000 b/d), Minatitlan (200,000 b/d), Ciudad Madero (195,000 b/d)
Pipelines: Crude oil - 17,500 miles; Petroleum products - 6,300 miles; Natural gas - 8,200 miles

Links to other sites:
1997 CIA World Factbook - Mexico
U.S. Department of Energy's Office of Fossil Energy's International section - Mexico
U.S. International Trade Administration, Country Commercial Guide - Mexico
U.S. Department of Commerce NAFTA Home Page
U.S. Embassy in Mexico, Commercial Service Home Page
Consular Information Sheet - Mexico from the U.S. Department of State

The following links are provided solely as a service to our customers, and therefore should not be construed as advocating or reflecting any position of the Energy Information Administration (EIA) or the United States Government. In addition, EIA does not guarantee the content or accuracy of any information presented in linked sites.

Mexico's Ministry of Energy Home Page
Mexico's Energy Regulatory Commission (CRE)
PEMEX's Home Page the state-owned oil company of Mexico
Institute of Latin American Studies Reference Home Page on Mexico
Mexico Energy information from the National Law Center for Inter-American Free Trade
TradePort Trade Directory for Mexico
Mexico Investment Board, Petrochemical Industry in Mexico

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File last modified: May 2, 1997

Contact:

Douglas MacIntyre
dmacinty@eia.doe.gov
Phone: (202)586-1831
Fax: (202)586-9753