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Mexico's energy problem - Oil, politics a difficult mix

MEXICO CITY — While record-high oil prices have filled the coffers of Pemex, Mexico's state-owned oil company, experts say the good times mask a looming problem in the country's energy sector.

The Cantarell oil field in the shallow waters of the Gulf of Mexico, Mexico's biggest, is running low. Exactly when it will run out, nobody knows.


Year, Barrels
1980, 31.25 billion
1985, 48.60 billion
1990, 56.37 billion
1995, 50.78 billion
2000, 28.40 billion
2001, 28.26 billion
2002, 26.94 billion
2003, 12.62 billion

Reforms and capital are needed to ensure the replenishment of Mexico's reserves, and Petróleos Mexicanos — or Pemex — has talked with foreign oil companies about joint ventures to explore what could be vast deep-water reserves in the Gulf of Mexico.

The company needs at least $50 billion over 10 years to build platforms to conduct studies, drill holes and build pipelines to extract oil, industry experts say. They contend Pemex can't go it alone.

But serious obstacles stand in the way.

Mexico's constitution prohibits foreign investment in oil, and a majority of the nation's congressional members oppose it. Politicians and academics already are criticizing Pemex's decision to allow other companies to bid for rights to extract natural gas from Mexican reserves, calling it a back door to privatization.

Support for national control of oil runs deep. The anniversary of the 1938 government takeover of the oil industry is recognized publicly each year.

Mexican politicians are skeptical of private ownership in the energy industry in part because of the Enron scandal and the California blackouts of recent years, said Rogelio Ramirez de la O, director of Ecanal, a private economic analysis company in Mexico City.

Mexicans in general worry that if Pemex were privatized, even less of its profit would be used for the common good.

Ramirez de la O said Pemex would have the money to explore deep-water deposits if politicians cleaned up deep-rooted corruption. Rather than reinvesting Pemex's money in exploration, he said, politicians treat the company like a piggy bank. Oil profits account for about a third of the government's revenue.

Mexico's crude oil reserves have declined from 50.8 billion barrels in 1995 to 12.6 billion barrels in 2003, according to U.S. government figures. At its current production of about 3.4 million barrels per day, that's about a 10-year supply.

Some Mexican figures cite higher reserve levels. Still, if no new reserves are found, "then forget it," Ramirez de la O said. "It will be a nightmare."

In the past 20 years, Pemex has not invested heavily in finding new reserves. In the 1990s, for example, the state-owned company identified new reserves for only 26 percent of what it extracted, according to remarks by Raul Munoz Leos, general director of Pemex.

Under his guidance, he said, Pemex has doubled its spending on exploration during the past two years.

Mexican President Vicente Fox has not been able to push other Pemex reforms.

For example, Fox wanted to put businessmen on Pemex's board of directors, which is now made up of six government ministers and five labor union members.

Mexico City energy analyst and consultant David Shields said the needs of the industry are not understood. "It's run based on political criteria," he said.

Three months ago, Pemex announced that seismic studies showed deep-water reserves in the Gulf of Mexico that could equal 54 billion barrels of potential oil. The government did not say exactly where the oil is, but there have been finds in the northern Gulf, close to U.S. waters, roughly at the same latitude as Brownsville, Texas.

The Alaminos Canyon is in this area and straddles the two countries. On the U.S. side of the canyon, discoveries have shown about 1 billion barrels of oil, far less than Pemex's estimate, Shields said.

"It's very common to talk in Mexico of great wealth that may be unleashed, but nobody really knows the extent," he said.

Pemex's production is important to Mexico's economy, which already must import at least 20 percent of its gasoline. Mexican motorists pay about $2.14 per gallon at the pump. Electricity in Mexico is also expensive, and the country does not produce enough petrochemicals to supply Mexican industry, Ramirez de la O said.

Nonetheless, Shields said, the country has gotten along very well for 25 years because the Cantarell oil field, which has abundant oil near the surface, is one of the best in the world.

"That's why you can have all these profits" despite being inefficient, Shields said.

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