U.S. and Canadian midstream and downstream operators have significant growth potential right now in Mexico, thanks to that nation’s ongoing energy reforms.

Jesús Reyes-Heroles, former CEO of the government energy monopoly, Petróleos Mexicanos (Pemex), and former Mexican ambassador to the U.S., told the 2014 Deloitte Oil & Gas Conference that changes to the nation’s constitution and subsequent new laws and regulations “are truly a game changer” for both Mexico and private enterprise. He added that while the opening of Mexico’s upstream E&P to private producers has received the most publicity, all sectors of the hydrocarbon industry are opening. Rapid development of crude oil and natural gas reserves implies a corresponding buildout in Mexico’s limited midstream sector, he noted.

In parallel, Mexico’s underserved electric power business is opening up. Reyes-Heroles currently serves as executive president of StructurA, an organization of Mexican consulting firms based in Mexico City.

“The reforms are happening very, very quickly,” Reyes-Heroles said, noting the constitutional amendment allowing private firms to enter the oil and gas business alongside Pemex only passed the Mexican Congress in December 2013. Regulatory change continues now “and the reforms are coming very, very quickly,” he added. He noted the federal government has identified 200 energy-related contracts currently in process with hundreds more to come.

One danger of the rapid change is the potential for regulatory mistakes that could inhibit desired economic growth. “This has come to the surprise of all of us, perhaps it is too fast,” he said.

Reyes-Heroles listed 25 “top opportunities” for private firms, specific business categories in the oil and gas value chain, rating each by current openness to investment. Gas pipelines were at the top of the list and he added the first moves to open Mexico’s limited gas transmission system pre-date the constitutional reforms, dating from the late 1990s.

In second place are retail service stations since the reforms allow private firms to open marketing operations in competition with the nation’s 10,000 Pemex retail sites.

Third on his list are gas utilities and fourth are crude oil pipelines. Reyes-Heroles also discussed Mexico’s need for new refineries, noting that half of the nation’s gasoline and diesel fuel are now imported due to a lack of domestic refining capacity. Mexico also has a limited petrochemical industry despite its historic role as a major oil producer.

Concurrent with the oil and gas reforms, Mexico has opened its electric power business, long a monopoly of government-owned Comisión Federal de Electricidad (CFE), he said. Mexico’s power generation capacity has been limited and many power plants are inefficient, relying on fuel oil and diesel. New power plants built by CFE or power wholesalers will likely burn gas, requiring new gas transmission infrastructure.

The sudden and sweeping reforms are a challenge to Mexico’s federal government since private business entering the energy industry implies less business for Pemex—and that means lower revenues flowing from the government firm. Pemex has been a significant source of government revenue for years.

“It’s implied that additional [government] financing will come from the new, private players,” he said.

“It’s exciting to talk about positive things in Mexico. Talking about the energy reforms is a pleasure,” Reyes-Heroles said, but added later in his presentation that Mexico’s inefficient business and regulatory environment pose important obstacles to creating the economic growth the nation needs. A greater threat lies in rampant crime in many regions.

“Unfortunately, oil development is in these challenging areas,” he said, adding the government continues to take significant steps to improve security.

The goal of these major changes will be a significant increase in economic growth, Reyes-Heroles said. “Natural” growth in GDP, he added, would be in the range of 2.5% to 3% per year, barely adequate for the rapidly growing nation. The hoped-for target will lift GDP growth to 4.7% to 5.2% annually.

Reyes-Heroles’ presentation built on two Deloitte reports on Mexico made available at the Houston conference, “Mexican Energy Reform, Opportunity Knocks,” and “Mexican Utility Reform, Powering The Future.”

The first report noted, “There are significant midstream opportunities to develop the necessary pipeline, liquefaction and port facilities needed to bring the new products to market. In addition, there are downstream opportunities to refine and market finished products.”

Deloitte’s report on Mexico’s power utilities observed, “The primary driver of [power] reform is to reduce the price of electricity, promoting competitiveness and growth.” The nation heavily subsidizes CFE’s residential power rates, which are roughly one-third less than residential rates for electricity in the U.S. However, industrial power rates are significantly higher, averaging nearly 75% above what U.S. commercial customers pay.