Energy Reforms and Manufacturing in Mexico

Lots of perspectives and commentary swirls around the 2013 Energy Reforms in Mexico. The Reforms permit more private participation in the production of both Oil and Gas and Electricity, plus in some cases greater downstream support by the private sector. The bylaws and enactment and implementation of the Reforms have led to great speculation on angles and interests, but we see the reforms as practical. The bottom line from our perspective is, the reforms were made in order to reduce energy costs in Mexico. They come at a time when it has become more expensive than ever to produce electricity from oil, when Mexico is consuming more energy than ever, and when it has become clear that Mexico’s energy costs– higher than they should be due to systemic inefficiencies– are drag on the country’s economic competitiveness.

 

The IMF produced a numbers-heavy analysis on how the Reforms should affect manufacturing in Mexico. Here’s one of the graphics in it, which illustrates how different manufacturing subsectors important to Mexico are negatively effected by increases in energy prices. As they sum it up, all of manufacturing suffers in Mexico when energy prices go up. Even the petroleum industry. (Elasticity was calculated considering both natural gas prices and electricity prices.)

 

Elasticities to energy prices by [Mexican manufacturing] subsector

blog energy elasticity

Source: International Monetary Fund with data from Instituto Nacional de Estadística y Geografía

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