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Mexico energy: High hopes for 'magnificent reform'

Friday, 20 Dec 2013 | 8:43 AM ET
Pemex's La Muralla IV deep sea crude oil platform in the waters off Veracruz, Mexico.
Susana Gonzalez | Bloomberg | Getty Images
Pemex's La Muralla IV deep sea crude oil platform in the waters off Veracruz, Mexico.

When Mexican President Enrique Peña Nieto signs a new oil reform into law Friday, it could mark a turning point for Latin America's second-largest economy, one of Mexico's leading energy officials told CNBC.

"It's a magnificent reform," Mexico's Energy Undersecretary Enrique Ochoa said in an exclusive interview. Along with many other energy experts, he thinks the law will lead to an increase in oil and gas production, as well as lower energy prices.

The law will change three articles of the nation's constitution, thereby allowing foreign investment and production-sharing agreements in Mexico for the first time in more than 70 years.

The reform was necessary because the country's oil and gas model had shown "signs of exhaustion" for years, Ochoa said.

"Oil production had been declining. Gas production had been declining as well. We used to be self-sufficient in natural gas, and now we're importing a third of our consumption from the U.S.," he said. "We are importing 50 percent of gasoline in Mexico. We are also importing 65 percent of petrochemicals."

Mexico's daily oil production has dropped to 2.5 million barrels from 3.5 million. The problem is not a lack of oil, however, but a lack of money. Mexico produces nothing from the deep waters (below 500 feet) of the Gulf of Mexico, while U.S. producers turn out more than 300,000 barrels per day from that depth in the Gulf.

Deep-water drilling is expensive and risky, but Mexican state oil company Pemex has been prohibited from entering into production-sharing agreements with foreign companies since the industry was nationalized in 1938.

Mexico signs oil production reforms into law
CNBC's Michelle Caruso-Cabrera reports on reforms in Mexico's oil industry, as the country seek to increase energy production.

(Read more: Late to game, Mexico must hustle to attract foreign oil firms)

The new law is not popular with everyone. A member of the opposition party stripped to his underwear on the floor of the Mexican Congress last week, saying, "This is how we are stripping down the nation."

The people own Mexico's oil, according to its constitution, and the oil industry is a major point of pride for Mexicans.

Ochoa said the Mexico Department of Energy estimates that foreign direct investment in the sector will rise by 50 percent by 2018, to $10 billion, and that 500,000 jobs will be created in the process.

The government also projects that production will rise to 3 million barrels a day by 2018 and to 3.5 million by 2025.

—By CNBC's Michelle Caruso-Cabrera. Follow her on Twitter @MCaruso_Cabrera.

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