Monday, February 25, 2008
Pemex, Mexico’s Oil & Gas
Monopoly, Must be Modernized
By Allan
Wall
What is PEMEX, and where is it going?
PEMEX
(Petróleos Mexicanos) is Mexico’s state oil monopoly. PEMEX is protected
from competition in Mexico, where it enjoys a legal monopoly on the exploration, processing and sale of petroleum. Its privileged status in national mythology affords it a certain immunity from criticism.
Nevertheless, PEMEX is in deep trouble. It's heavily
indebted and unable to provide the capital necessary to locate and exploit new oil deposits. The
Canterell Field, Mexico’s biggest, peaked in 2004, and according to President Felipe Calderon, Mexico only has proven
reserves for another nine years. There’s a lot more oil out there, but PEMEX lacks the funds and expertise to get it.
This wasn't the future envisioned by President Lazaro
Cardenas, who expelled the foreign oil companies and founded PEMEX in 1938, to give Mexico's oil to "the people." (March 18th, the date of the Expropriación Petrolera
– Petroleum Expropriation – is commemorated annually.)
The Mexican Constitution (Article 27) guarantees PEMEX's
privileged position, a monopoly over the oil industry, from exploration to the sale of gasoline at the pump.
PEMEX service stations, with their familiar green
signs, dispense gasoline nationwide to the captive Mexican consumer. Sometimes the fuel is watered down, but hey, it belongs
“to the nation”!
Even Cuba allows foreign companies to exploit
offshore oil. PEMEX does subcontract out some work to private (even foreign) companies, but that isn't solving its undercapitalization
problem.
The principal contradiction for PEMEX is having to
function as both an oil company and a government bureaucracy.
PEMEX is utilized as a golden goose by the government,
which siphons off most of its profits to the general budget. This takes away
funds that could be used for oil exploration, exploitation and processing. Only about 20% of Mexico's territory has been properly
surveyed for petroleum deposits.
Then there is the acute lack of refineries.
The United States has 149 operable oil refineries. Mexico, with about a third of U.S. production, has only six!
PEMEX is prohibited from partnering with foreign companies
within Mexico, but not abroad. So Mexican crude is shipped to Houston, Texas, where it is refined (in partnership with Shell)
and then re-imported to Mexico. Is that bizarre or what?
And since its vast natural gas fields can't be properly
exploited, Mexico is a net importer of natural gas from the United States.
Ironically, socialized petroleum makes Mexico more
dependent – not less – on the United States.
Mexican pundit Sergio Sarmiento is not a big fan of
Mexico’s oil monopoly, which he describes thusly: "… PEMEX … supposedly the property of all Mexicans …
has only served to benefit the government, the political elite and the petroleum [workers’] union."
Nevertheless, reforming PEMEX is very difficult.
Article 27 of the Constitution proclaims that all
Mexican natural resources are the property of the nation (which in the real world means the property of the government!).
However, the article makes a distinction between petroleum
and mineral resources such as silver (of which Mexico is the world’s #1 producer), gold, lead, zinc, iron, etc.
Foreign investment is permitted in the mining industry,
in fact foreign companies are actually able to buy and sell concessions to mining operations. But
not in petroleum.
It’s easy to change the Mexican Constitution
though, if the political will exists. It’s been amended almost 500 times
since 1917. As the recent electoral reform indicates, the Constitution can be changed rather quickly if all the party bosses
are on the same sheet of music.
The real barrier is psychological, not constitutional. Mexican politicians have been raised on the rhetoric of oil as property of the nation.
Just mentioning privatization or even private investment elicits hysteria. Witness,
for example, the rhetoric of 2006’s losing presidential candidate Andres Manuel Lopez Obrador, who isn’t sharing
concrete proposals to help PEMEX, but would gladly scuttle any sort of reform that would save it.
Nevertheless, it’s become obvious that something
must be done, and the Calderon administration is working to achieve some sort of reform.
A full-fledged privatization is not in the works, and there’s practically no demand for it. But if Mexico wants its government to maintain control over its oil industry while simultaneously allowing
more foreign investment, there ought to be a way to do that, as other countries have.
Hopefully this year will see some kind of substantive
reform that can reform PEMEX, for the good of Mexico and its economic development. Otherwise
the company is headed down the tubes.
——————————
Allan Wall, a MexiData.info columnist, recently returned from a tour of duty in Iraq. He
currently resides in Mexico, where he has lived since 1991.
