The recent historic changes made to Mexico’s hydrocarbon laws is opening doors for private oil and gas investment in the country, which is expected to secure more competitive feedstocks necessary for expanded petrochemicals production in Mexico. It will also allow for cheaper electricity costs in Mexico, which, in turn, will help improve the country’s competitiveness and create opportunities for new domestic and foreign investment in Mexico’s manufacturing and petrochemical industries, says IHS.

“The lack of investment in the Mexican oil and gas industry also has curtailed growth in the country’s petrochemical sector, which has been stagnant in terms of growth for the past 15 years,” says Dave Witte, senior vice president of IHS and general manager of IHS Chemical. “Several facilities have closed and no significant new production capacity has been installed in recent years, but we believe upcoming energy reform will bring access to much-needed feedstock supplies. This, in turn, will help improve Mexico’s manufacturing competitiveness and drive demand growth downstream. We at IHS Chemical expect this will create opportunities for new domestic and foreign investment in Mexico’s petrochemical and downstream industries.”

In 2013, the petrochemical industry accounted for nearly 12% of manufacturing, according to Mexico’s National Institute of Statistics and Geography (INEGI). Last year, Mexican imports of chemicals reached $24.5 billion, which represents approximately 8% of imports made by the manufacturing industry according to INEGI’s statistics. According to IHS economic analysis, the Mexican economy and GDP, led by the manufacturing sector, will grow 4.2% in 2015 and will continue to be positive in 2016, with a 4.03% GDP increase expected.

When it comes to chemical demand and production, Witte says, “There are dramatic examples of opportunities in a number of value chains where Mexican industry could benefit from enhanced domestic chemical supply capabilities. Automotive and agriculture are two of the industries in Mexico with high-growth potential, and the plastics industry is another. In the case of polyethylene resins, for example, in 2014, Mexico will have to import approximately 1.5 million tons of this widely used plastic. This represents close to 80% of Mexican demand. However, this polyethylene supply and demand imbalance will change once the Etileno XXI project starts late next year.”

Etileno (ethylene) XXI is the name of the project currently under construction by the joint venture between Brazilian-based Braskem and Mexican company IDESA. IHS Chemical expects construction to be completed by the end of 2015, and according to Witte, the project represents the first “grass-roots” petrochemical facility built as a result of the current energy revolution reported in North America, since the site will rely on natural gas as its feedstock.

Mexico is strategically positioned, says Witte, to attract investments from the U.S. and other foreign companies seeking to access the Latin American market. “There are significant gaps in terms of chemical supply in Mexico, so the need is there domestically, and with the new flexibility to invest due to the changes in the legislation, we at IHS see very good opportunities for the Mexican chemical industry,” Witte says. “The challenge for Mexico is to improve its cost competitiveness to attract the investment it needs. For Mexico to become a real petrochemicals powerhouse, the long-term availability of cost-competitive feedstocks will be absolutely necessary. To achieve this, Mexico will likely consider taping into its shale hydrocarbon resources as part of its feedstock strategy.”

Witte says that advancing the petrochemical industry must stay high on the list of Mexico’s top priorities. “There are some short-term priorities, but a window of opportunity has just opened that cannot be missed.”