Oil Shapes Up as Issue for Mexico's Elections

By: John Lyons
November 30, 2005; Page A16
The Wall Street Journal

Current debate over Mexico’s oil economy will likely take center stage at the presidential elections next year. Felipe Calderon, the candidate for the ruling National Action party, suggested that the constitution be amended to allow private companies to explore for oil, while a leftist candidate wants to keep energy production in the hands of the state. Mr. Calderon predicts that Mexico, one of the world’s largest producers of oil, will run out of natural reserves in a little over a decade. He further suggests that lifting of this constitutional ban on private exploration will serve as a means to replenish oil reserves and lower the cost of refined fuels.

"If someone else can come here, build a refinery bigger than the ones we have and at a lower cost, then let them do it," Mr. Calderon told the American Chamber of Commerce in Mexico City. Several members of the populist party are taking the opportunity to highly criticize Calderon, who is the first serious presidential candidate to consider lifting the constitutional ban on private exploration in the oil industry.

Petroleos Mexicanos, the state-owned agency which provides about a third of government revenue, “lacks the management expertise, technology and finances to replenish its oil reserves, much of which are believed to be in the hard-to-reach deep waters of the Gulf of Mexico.”

Questions:
1) What are the potential benefits and downfalls of lifting this constitutional ban on oil exploration?
2) With elections approaching, will this issue potentially “make or break” Calderon’s presidential campaign?