Monday, November 18, 2013
Petroleum, PEMEX, and Other State-owned Oil Companies
What is to become of PEMEX (Petróleos Mexicanos),
Mexico's state-owned petroleum monopoly? That's the question facing the Peña Nieto administration and
the Mexican Congress.
Legally, PEMEX holds a monopoly over the oil industry,
from exploration to processing to the sale of gasoline at the pump.
privileged status in national mythology affords it a certain immunity from criticism. It's more than a question
of economics. PEMEX is deeply tied into Mexican identity and the question of national sovereignty.
But PEMEX is in deep trouble. It's heavily indebted, its production is decreasing,
and if present trends continue Mexico will be an oil importer by 2020.
basic problem is that PEMEX is not really managed as an oil company, but as a cash cow of the Mexican government, which makes
it difficult to function as a normal oil company. PEMEX is the source of a third of the Mexican government's revenue.
There's something psychological in the Mexican collective psyche which makes it difficult
to reform PEMEX. For a Mexican politician to just mention private money and oil in the same sentence is to invite a
torrent of hysteria.
That's a contrast with some other sectors of
the Mexican economy. In just a few years, Mexico changed from a highly-protectionist state which severely restricted imports
to a major free-trading nation. Even the mining industry is open to foreign investment, selling concessions to private
companies, including foreign companies. Petroleum though is another question entirely.
In order to break through the psychological wall surrounding PEMEX, proponents of reform have to make their case
based on Mexican sovereignty. How is Mexico's sovereignty served by a badly-administered state oil company that
ignores the technical and economic realities of the oil industry?
do other countries manage their oil industries?
Here in the United States,
the free market rules the petroleum industry. Oil is not considered state property, but the property of those who own
the mineral rights. Thus oil companies have to deal with private ownership from the get-go.
The free market has been very good for the American oil industry. However, that isn't in the cards for the Mexican
oil industry. Almost nobody wants complete privatization.
worldwide is owned by state-owned oil companies, which control an overwhelming 90% of proven oil reserves worldwide and account
for 75% of world oil production.
The top ten oil companies, by reserves
controlled, are state oil companies. The #1 company by reserves is Saudi Arabia's Saudi Aramco, with the largest proven
oil reserves in the world. In second place is the NIOC (National Iranian Oil Company). In third place is Qatar
Petroleum, owned by a peninsular nation in the Persian Gulf. In fourth place is the Iraq National Oil Company.
So the top four national oil companies are in the Persian Gulf area.
fifth place is PDVSA, Venezuela's state petroleum company, followed by the Persian Gulf's Abu Dhabi National Oil Company;
with PEMEX in seventh place. The Nigerian National Petroleum Corporation is in 8th place, the National Oil Corporation of
Libya in 9th, and in tenth place is Sonatrach of Algeria.
The top ten
production list includes both state and private oil companies: Saudi Aramco at #1, followed in descending order by the National
Iranian Oil Company, ExxonMobil, PetroChina, British Petroleum, Royal Dutch Shell, PEMEX (at #7), Chevron, Kuwait Petroleum
Corporation, and Abu Dhabi National Oil Company.
Most state oil companies,
however, allow some form of private investment and partnership with private companies. PEMEX is the strictest about
foreign investment. Even Venezuela and Cuba (!) allow more private investment in oil exploration.
One model that might be valuable for Mexican policy-makers to consider is that of Petrobras,
the Brazilian state oil company. As of 1997, the company no longer held the monopoly over oil, but the Brazilian government
is still the company's principal owner. The Brazilians have found a successful balance between state ownership and
cooperation with private companies, and Petrobras is now among the leaders in deepwater and ultra-deep water oil extraction.
It's the southern hemisphere's largest company by market capitalization and, calculating by revenue, was Latin America's
biggest company in 2011.
It's not that Mexico should slavishly copy
the policies of Petrobras, or any other oil company. But successful business models are at least worthy of consideration.
The trick is to find the balance that will work for Mexico.
Allan Wall, an educator, resided in Mexico for many years. His website is located at http://www.allanwall.info/.