MEXICO ENERGY INDUSTRY CHALLENGES FOR 2007 AND 2008

Investors, government policymakers, and energy users are unsure about the direction and future opportunities in Mexico's energy sector. CERA has identified ten overarching questions that are signposts to developments in the industry during the current presidential term (2006-12). These ten questions can be grouped into three broad themes: the evolving political climate, potential changes in access to investment opportunities, and the impact of global trends on Mexico.

*The evolution of the political climate is critical to energy sector developments. Three levels of possible changes are particularly relevant: institutional changes designed to strengthen the existing energy entities, operational changes that aim to reassign energy rents, and structural changes to create new spaces for private sector participation.

*Varying market structures across Mexico's energy value chain allow different degrees of access and opportunity for private investors. This calls for differentiated strategies, including monitoring opportunities in the exploration and production segment, vertical integration in downstream natural gas, and more aggressive merger and acquisition transactions for power development.

*Global trends in economics and politics will also play an important role in shaping Mexico's energy policy. In particular, commodity price cycles and the balance between globalization and nationalism could help either to perpetuate the existing state-led model or accelerate a transition in which the private sector has a more relevant role.

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CERA Reports Online, a wholly owned subsidiary of IHS Energy, is a leading advisor to international energy companies, governments, financial institutions, and technology providers. CERA delivers critical knowledge and independent analysis on energy markets, geopolitics, industry trends, and strategy. CERA's expertise covers all major energy sectors--oil and refined products, natural gas, and electric power--on a global and regional basis.