“If he is elected president, Andrés Manuel López Obrador should not just tolerate but champion Mexico’s energy reforms. Confidence will lead to greater foreign investment into oil, increasing the capital stock of the host country to result in higher oil production.”
The front-runner for the Mexican 2018 election (scheduled for July 1) is Andrés Manuel López Obrador (AMLO for short). The former mayor of Mexico City has been runner-up in the past two presidential elections.
Due to his leftist and populist leanings, AMLO’s political opponents have claimed he will be the Mexican Hugo Chavez. Although he claimed in 2016 that he would seek to cancel contracts signed under the Mexican energy reform of 2013–2014, his position now seems to have calmed to where an authoritarian cancellation is very unlikely.
Background
The Mexican energy reforms of 2013-14, associated with the current president’s “Pact for Mexico,” allows foreign companies greater participation in Mexican oilfields.…
“We don’t observe the boundary effects in our modern economy and haven’t throughout oil’s history because reserve estimates have grown over time and will continue to grow for the foreseeable future.”
Mineral resource alarmists, reflecting a fixity/depletionist view of the world, begin by arguing that “you must admit that there is a fixed amount of oil on this earth.” This is true in the purely physical sense that roughly 2 million barrels annually are created by the earth versus the 35 billion barrels consumed in a year.
Oil is a non-renewable resource, but that doesn’t mean our economic models should treat it as a drawdown of static inventory. A great example for the issue of fixity in resource economics is reservoir modelling for a singular oil well. In reservoir engineering, there are flow regime equations that model how the fluid moves from the formation into the wellbore.…
“Cutting production in 2016 is much more dangerous to OPEC ‘s market share than the Arab Embargo of 1973. …. Today, the United States has massive reserves of oil and gas that will be, not might be, produced at the right price point.”
On October 17, 1973, the Organization of Petroleum Exporting Countries agreed to a five percent production cut from the previous month’s levels. They intended this strategy not solely for increasing their oil revenue but to punish the United States for its support of Israel in the Yom Kippur War. This production cut increased the price of oil dramatically and led to oil discoveries around the world including massive plays in Alaska, Mexico, and the North Sea.
Those three regions alone added approximately 6 million bbls/day to the world oil supply in the next seven years following the embargo.…