Monday, November 5, 2007
Pemex and Mexico Could Be Drowning in a Sea of Oil
By Carlos Luken
was little surprise as the news of yet another hike in oil prices hit the trade airwaves this week. Many specialists had already
predicted the probable increase, and most highly developed nations hurriedly made adjustments to amend the impact to their
“oil poor, oil hungry” dependant economies
a US$86.00 per barrel price, oil has already doubled its nominal historic high of US$43.00 in
the 70’s, and is rapidly approaching its real historic value which will be approximately US$104 (adjusted after
inflation). Most market analysts also predict that this new price will be easily reached by the middle of November (if not
sooner in some economies), and are troubled as they expect more demands that allegedly will drive the price to a new high
by year end.
most “oil rich poor countries” jubilantly received the intelligence and contemplated how to make the most of the
sudden windfall revenues.
Mexico received the news with mixed feelings. On the positive side, despite its Cantarell Sound depletion, Mexico still has
vast oil and natural gas reserves in the Gulf of Mexico. Also, the recently approved federal budget estimated total export
income at an inferior price per barrel for its heavier Maya crude.
financial experts agree, Mexico has little cause to rejoice.
of decades of mismanagement, corruption, sloppy planning and excessive waste, PEMEX (the state oil monopoly) is in no position
to benefit from the market situation.
as Mexico’s financial needs increased the treasury simply milked its cash cow PEMEX by raising the monopoly’s
tax base and diverting oil proceeds into social programs or to government spending. In time Pemex would account for a whopping
60% of the country’s total tax revenues. The monopoly’s remaining income scarcely covered operating expenses,
wages and excessive benefits for workers belonging to a politically favored union; consequently it was insufficient to cover
exploration costs, infrastructure development, technological research, or deep water drilling.
PEMEX was praised as Mexico’s primary showcase of nationalist pride and sovereignty; it also became one of the world’s
principal examples of industry mismanagement and wastefulness. Its lack of investment in infrastructure and technology resulted
in yearly decreases in efficiency as it gradually depleted most of its land and offshore wells.
time the oil giant was nearly insolvent and unable to exploit its own huge oil and natural gas resources. Without refining
capability it was hard-pressed into exporting low-priced crude and importing costly refined gasoline and other products. In
a sense PEMEX was drowning in a sea of oil
Ernesto Zedillo administration (1994-2000) was the first to recognize the perilous future PEMEX (and Mexico) was facing and
began making adjustments to support its finances. It also attempted to introduce legislation allowing private investment in
the oil monopoly. Considering the advanced technology necessary and the quantity of capital required to invest in infrastructure
and deep well extraction, the source would necessarily have to be foreign. This drew immediate negative reaction from Congress
and all energy reform initiatives were robustly opposed and soundly defeated by a naive nationalistic majority.
infrastructure deteriorated and demands became imperative, the Vicente Fox (2000-2006) administration was also unable to pass
the vital energy plan required to jump start the industry and take advantage of deep water fields in the Gulf of Mexico.
Pemex’s outdated infrastructure was severely damaged by heavy storms in the southern states of Tabasco and Campeche,
where the larger part of oil is presently being extracted. The storm caused total havoc by disabling two oil platforms, resulting
in the death of 26 workers who could not evacuate because of inoperative escape pods. The squall also shut down the three
main tanker shipping ports, impeding the exportation of millions of barrels of crude oil.
is estimated that if PEMEX acquired the necessary resources to invest in its infrastructure modernization, it would take at
least five years to upgrade installations to an efficient level. As to how long it will take to revise its administrative
practices, organization and labor problems, it’s hard to say as it has to completely discard obsolete arrangements and
economic analysts agree that the inflexibility of Congress, and partisan shortsightedness to pass energy initiatives, will
have increasingly damaging repercussions that could lead to yet another major financial crisis. As well, many note that regardless
of the party that will win the 2012 elections, it will take over either a buoyant economy or a wrecked country.
Carlos Luken, a MexiData.info columnist, is a Mexico-based businessman and consultant. He can be reached via e-mail at email@example.com.