Monday, August 31, 2009

PEMEX: Mexico Loses $700 Million Annually to Oil Theft

By Sylvia Longmire

Normally when someone hears a story about oil theft or criminal groups hacking into pipelines, one thinks of places like Nigeria or Iraq. Unfortunately, oil looting is rampant in Mexico, and it’s costing the government millions.

And it’s not just oil that’s being stolen.

Mexican criminals have been tapping into Petróleos Mexicanos (Pemex) pipelines for years to steal gasoline, diesel, and even jet fuel, according to Reuters' reports. Criminals dig up pipelines that are buried in rural areas, attach a valve, and then siphon off the fuel. They usually have no problem selling the stolen fuel to corrupt service station owners or companies that operate large fleets of vehicles in Mexico.

The theft of crude oil is not as common because the oil must be sent somewhere else to be refined into something valuable. Yet, the fact that this is occurring highlights either desperate economic times or very bold criminals. The reality is that it’s probably a little of both.

It sounds almost comical to picture a group of Mexican criminals hacking into a pipeline, filling a truck full of oil, somehow managing to cross the U.S.-Mexico border with all the proper paperwork, then driving up to a refinery and yelling, “Hey! Does anybody want this oil? We’re selling it for cheap!” While that’s not exactly what’s happening, there are individuals in the U.S. that are facilitating this process.

According to MarketWatch, federal documents released on August 21 revealed a Texas chemical plant, owned by German chemical company BASF Corp., bought $2 million worth of petroleum products that had been stolen from Pemex and smuggled across the U.S. border. The documents also showed the stolen condensate passed through several companies' hands before arriving on a barge at the BASF facility in Port Arthur, Texas.

The actual transport of stolen oil from Mexican pipelines into U.S. corporate hands is complicated at best. Donald Schroeder, former president of Trammo Corp., testified that in January 2009, two companies, Murphy Energy Corporation and Continental Fuels, contacted him. Both wanted to sell him stolen condensate. Apparently he agreed to buy it, and the transfers began. “Unnamed import companies” would sell the condensate to intermediary companies like Continental (which has since shuttered its headquarters in Houston). Those import companies would smuggle the condensate across the border and store it in Continental facilities. No details were available on how those trucks managed to successfully cross the U.S. Mexico border. These piecemeal transfers would continue until there was enough oil in the storage facility to fill a barge and ship to BASF.

Jim McAlister, an Assistant U.S. Attorney, said he has no reason to believe that BASF has any involvement in the alleged wrongdoing. The President and founder of Murphy Energy Corp., Matt Murphy, said the company did not know that the condensate was stolen. Josh Crescenzi, the vice president of Continental Fuels, has not been indicted in the case, nor has anyone else from Continental.

This particular case has been a success, resulting in the handover of $2.4 million by U.S. customs authorities to the Mexican government. But the extent of corruption in Mexico—within Pemex, in particular—and the ease with which oil can be stolen from pipelines makes the mitigation of oil looting an almost insurmountable challenge.

Adding to the problem is the fact that Mexican cartels are likely involved. According to Reuters, the Mexican government believes the cartels use stolen jet fuel in their aircraft to cover up any evidence of illicit flights.

The Mexican Senate has acknowledged the complicity of corrupt Pemex and Mexican government officials in oil looting, and appealed to Attorney General Eduardo Medina Mora to step up efforts to investigate the thefts.

The physical security and monitoring of Pemex pipelines are apparently severely lacking. According to the Mexico City daily El Universal, oil looting has occurred in almost every state in Mexico. Mexican Senate testimony in August, citing Pemex statistics, indicated that 396 reported pipeline breaches occurred in 2008. More than three quarters of those breaches occurred in the states of Veracruz, México, Nuevo León, Tamaulipas, Guanajuato, and Hidalgo. Pemex has begun installing systems to detect declines in pressure in some oil product pipelines but the project is expected to take years to complete.

For its part, Pemex is soliciting the help of the Mexican people to try to put a stop to oil looting. On August 25, the Mexican government posted a Pemex press release that exhorts oil looting is not just an unpatriotic crime against the company and the government, but against the Mexican people. It also offers the number of a hotline where individuals can anonymously report pipeline breaches.

Bottom line, it all comes down to the reduction of corruption. The role played by corruption in Mexican police forces has been widely publicized in accounts of Mexico’s drug war, and it’s common knowledge in Mexico that most local police are on the take from the cartels—either voluntarily or through coercion. That’s mostly a physical security issue.

Corruption within state-owned Pemex is mostly an economic issue. Yet, oil looting poses a general national security issue just by the sheer volume of financial losses being sustained. Mexico’s economy is hurting, and it can’t afford to lose hundreds of millions of dollars in fuel every year to criminals.

Just add one more organization to President Felipe Calderón’s list of things that need to be cleaned up while he’s in office.

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Sylvia Longmire is a former Air Force officer and Special Agent with the Air Force Office of Special Investigations, where she specialized in counterintelligence, counterespionage, and force protection analysis. After being medically retired in 2005, Ms. Longmire worked for almost four years as a Senior Intelligence Analyst for the California State Terrorism Threat Assessment Center, providing daily situational awareness to senior state government officials on southwest border violence and significant events in Latin America. She received her Master’s degree from the University of South Florida in Latin American and Caribbean Studies, with a focus on the Cuban and Guatemalan revolutions. Ms. Longmire is currently an independent consultant and freelance writer.  Her website is Mexico's Drug War; she is a regular contributor to Examiner.com; and her email address is spooky926@gmail.com.