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Mexico’s oil industry woes

Editorial, Los Angeles Times
… Reforming the state-owned oil company is one of the most important initiatives of President Felipe Calderon’s administration, and it’s too important to fall victim to stunts from the left and retaliation from the right.

Which is exactly what happened.

It’s no surprise that Calderon’s business-friendly reforms are opposed by leftist leaders skeptical of what they see as a step toward the privatization of Pemex. Calderon has repeatedly said his intention is only to attract foreign investment in the ailing oil company, but they dismiss his assurances. And rather than engage in a debate that could have led to swift approval of reform proposals, they elected to shut down Congress. They padlocked the doors and camped out in the Chamber of Deputies. Not to be outdone, a conservative businessman retaliated with an ad campaign comparing Andres Manuel Lopez Obrador, the Democratic Revolution Party leader and Calderon’s former rival for office, to Hitler, Mussolini and Pinochet. The television spot — finally ordered off the air by the Federal Electoral Institute — warned voters that only tyrants shut down Congress.

Behind the gamesmanship and hyperbole is this sobering truth: Pemex is set to run out of reserves in less than a decade. Production is declining, and the company does not have the technology to reach the oil deep in the Gulf of Mexico. Without investment, it will continue its downward spiral, and Mexico cannot afford for that to happen; Pemex revenues account for 35% of the federal budget. That’s perilous for Mexico and ominous for the U.S., as that country is one of this country’s top oil suppliers.

But Mexicans remember how foreign oil companies exploited them when private investment was permitted decades ago. U.S. companies paid workers a pittance while making huge profits. Then, in 1938, President Lazaro Cardenas ejected U.S. and European oil companies from the country — a move that is still a source of national pride

… So it is a relief that the stunts have ended: Centrists and conservatives have agreed to hold a broad debate in the next congressional session in May, and left-wing protesters have packed up their sleeping bags. Now we look forward to progress. Anxiety over the future of a national treasure is natural. But the treasure is dwindling, and reform is essential.
(30 April 2008)

For Many, Control of State-Run Pemex Is About National Pride

Manuel Roig-Franzia, Washington Post
Mexico’s giant state-run oil company was once a source of universal pride here. Ballads were sung in its honor, and the money gushed as much as the crude.

But the company — Petróleos Mexicanos, or Pemex — is not aging well, and it is fast eroding into a creaking, crippled behemoth that even its biggest defenders say must change to survive.

In a once-unthinkable move, President Felipe Calderón urged an overhaul of Pemex earlier this month, calling on the Mexican Congress to allow the company more freedom to sign contracts with foreign firms better equipped to build efficient refineries and conduct expensive deep-water drilling.

… Mexico nationalized its oil industry in the late 1930s, seizing control of British and U.S. companies as part of a movement to bring large industries under state control. For decades, Mexicans bragged that their grandmothers had donated jewelry to help pay for the takeover.

The movement toward nationalization, though, has been steadily reversed. The government privatized its national telephone and railroad companies, and last year it sold off the state-run airline, Aeroméxico, at a price that Calderón’s critics asserted was far too low.

Pemex has been untouched, in large part because of its extraordinary financial importance.
(30 April 2008)
Also see Reuters Factbox on Mexico energy reform debate.

Untapped oil, overtapped politics
High pump prices can be traced to oil exporters such as Mexico that play politics with oil.

Christian Science Monitor
Untapped oil, overtapped politics
High pump prices can be traced to oil exporters such as Mexico that play politics with oil.

Americans need only look over the border to see a reason for geyserlike spurts in gasoline prices. Mexico, the third-biggest oil exporter to the US, saw crude production fall 7.8 percent over the past year. As in many oil exporting countries, the crux of the problem isn’t below ground.

Mexico’s state-run oil monopoly, Petróleos Mexicanos (Pemex), badly needs more foreign technical help, especially to drill in waters up to two miles deep in the Gulf of Mexico. But after President Felipe Calderón introduced such a politically explosive reform in April, leftist lawmakers shut down Congress for two weeks until last Friday, citing Pemex as the symbol of nationalist dignity.

Some dignity.

Mexico’s oil exports could dry up, possibly within five to nine years, as domestic demand rises and output sags for lack of modern oil expertise.
(30 April 2008)
Poor editorial from the usually fair Christian Science Monitor. The Los Angeles Times editorial (above) is far superior – better informed, more diplomatic. -BA

Proposals unlikely to improve Mexico’s oil output

Jim Landers, Dallas News
Mexico’s oil production continues to decline because Mexico’s oil company can’t do its job.

Petróleos Mexicanos doesn’t have the tools, talent or money to go after the billions of barrels of oil that lie in its deepwater zone in the Gulf of Mexico, and Mexico’s constitution bars any other oil company from doing the work.

In an already tight world oil market where prices are pressing $120 a barrel, any decline in oil supplies matters. It matters to the U.S., which buys 8 percent of its oil from Mexico and will have to look to other, shakier suppliers to take Mexico’s place. It certainly matters to Mexico, where more than a third of the federal budget comes from oil revenue.
(28 April 2008)