ANALYSIS-No "big bang" Mexico energy reform, only tweaks

By Catherine Bremer and Jason Lange

MEXICO CITY, Oct 17 (Reuters) - A comprehensive reform of Mexico's energy sector sought by President Felipe Calderon has foreign investors drooling but it is likely to elude the government for several years at least.

Instead of a "big bang" energy overhaul to open the sector to oil majors, Congress will first look at smaller legal changes that might give state oil monopoly Pemex more freedom to ally itself with foreign state-run companies, lawmakers say.

Mexico is facing a double headache of declining output and proved reserves that have shrunk to just nine years' worth of output. Pemex lacks the technology to explore deep waters in the Gulf where where it thinks massive reserves might be found.

Despite winning two other economic reforms in only a few months, Calderon lacks a majority in Congress and a key opposition party is not keen to lift a 70-year constitutional ban on direct private investment in energy.

"Constitutional changes are not on our agenda right now. It is a three-year agenda," said Sen. Carlos Lozano, a member of the Senate energy committee from the opposition Institutional Revolutionary Party, or PRI.

The president needs support from the PRI for any reforms but the party, which ruled Mexico for 71 years before 2000, is wary of angering voters ahead of mid-term elections for Congress in 2009. Many Mexicans see state stewardship of Mexico's oil wealth as a bastion of national sovereignty.

PRI Sen. Francisco Labastida, who recently visited Norway to see how state-controlled StatoilHydro (STL.OL: Quote, Profile, Research) became a leading player in deep-water drilling, said only a minority in his party were open to constitutional change.

Instead of a major reform, Congress may speed through laws to give state oil monopoly Pemex more budgetary and operational autonomy.