Mexico will likely get a huge economic boost from reforms to its energy market, according to experts, and the reasons go beyond stripping monopoly power from its state-run oil company.
Domestic and international businesses have been scrambling to position themselves since Mexican President Enrique Peña Nieto signed a major series of energy reforms into law earlier this month. But one thing is for sure: Experts agree the Mexican economy will reap major benefits from the new legislation—with several organizations estimating that the reforms will generate a 2 percent GDP boost by 2025, and add about 2 million jobs.
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Much of that growth is expected to come from increased oil and gas production and foreign investment allowed, but Mexico's economy will also see major gains from the availability of cheaper domestic energy, experts told CNBC.
"Mexican firms have gained in past years because of an improvement in human capital...but energy costs have kept them from being more competitive," said Carlos Serrano, the chief economist for Mexico at BBVA Bancomer. His firm "conservatively" predicts that Mexico will see a see a 1 percent GDP boost from the reform, with half of that coming from the changes in electricity costs and half coming from foreign investment in the energy sector.
But cheaper Mexican energy will not only help domestic firms—by decreasing their costs, these companies can become more competitive at home and abroad—but it should also increase foreign direct investment in non-energy sectors, Serrano said.
One piece of Mexico's energy reform will break up the electricity generation and distribution monopoly of Comisión Federal de Electricidad (CFE), and thereby reduce the costs. Serrano said his firm estimates that the change will result in a 40 percent to 50 percent decrease in Mexican electricity costs.
But experts also highlight that the reform will increase natural gas supply through a more efficient pipeline from Texas and the eventual development of domestic shale reserves. Currently, Mexico buys natural gas at roughly four times the price it goes for in the United States—mostly from across the Pacific, which is "a big tragedy," Serrano said.
"Natural gas is the linchpin of the energy reform," said David Goldwyn, former U.S. State Department special envoy and coordinator for international energy affairs, in a new report from the Atlantic Council. "The key to delivering lower cost and more reliable electric power to Mexico is increasing access to natural gas first by pipeline from the U.S., and then over time from indigenous production."
Mexico currently spends about $11.40 for each megawatt hour of electricity for industrial uses, according to the International Energy Agency. The U.S., meanwhile, spends about $6.60.
To be sure, many concerns remain before Mexican energy reform can be counted as a guaranteed growth booster. The Atlantic Council report highlights the uncertain future for Petróleos Mexicanos (Pemex)—the Mexican state oil firm, which will now be allowed to pursue a profit-maximizing strategy—in the face of impending competition from international companies.
Another major consideration, the Atlantic Council said, is the security of energy investments and operations in a country that still struggles with patches of lawlessness—especially in the natural gas-rich northern region.
—By CNBC's Everett Rosenfeld.