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 News Around the Republic of Mexico | March 2008 
Calderon's Idea of Seeking Foreign Help to Find Oil Irks Rivals
 Houston Chronicle
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 |  | The good news for Mexico is that we have petroleum and lots of it. The problem is that this treasure is buried beneath the ocean. To reach that oil we need to strengthen Pemex.
- President Felipe Calderon |  | | | |
Mexico City - The political showdown over the future of Pemex, the Mexican government's crucial oil monopoly, appears to loom at last.
At stake, people on both sides of the clash say, is the viability of Mexico's petroleum industry, which ranks as the third-largest source of imported U.S. oil and supplies nearly 40 percent of the Mexican government's budget.
Pemex - which exports about 1.4 million barrels of crude a day to the United States, most of it through Houston and its environs - has acknowledged that its oil production and reserves are dropping fast.
Many across the political spectrum here agree something must be done, and quickly, to reverse the tide, but the showdown isn't expected to come for several months. The argument involves whether to invite in American and other foreign oil companies, which have the advanced technology and resources to find more petroleum, and on what terms to do so.
Critics contend that, regardless of what they're saying publicly, President Felipe Calderon and his allies intend to privatize all or part of Pemex, which since its founding nearly 68 years ago has been both a patriotic symbol and a cash cow for the Mexican government.
"The capacity of Mexico to produce petroleum is declining because our proven reserves are running out," Calderon said last week in Los Angeles, where he ended a five-day tour of the U.S. "They probably will last nine more years."
Echoing the view of many industry experts, Calderon argues that a structure allowing private Mexican and foreign investment in Pemex's development of new reserves is urgent. Most of that new oil lies beneath the deep waters of the northern Gulf.
"The good news for Mexico is that we have petroleum and lots of it," Calderon said. "The problem is that this treasure is buried beneath the ocean. To reach that oil we need to strengthen Pemex."
But Calderon's efforts to push reforms permitting private investment through a Congress controlled by his opponents have been stymied by the resolute resistance of his leftist nemesis, Andres Manuel Lopez Obrador.
The former Mexico City mayor, whom Calderon defeated by a whisker for the presidency in 2006, argues that the reforms' real aim is to take Pemex private. The state-owned company was formed in 1940 from the expropriation of U.S. and British oil companies.
Like other critics of private investment, Lopez Obrador argues there is nothing wrong with Pemex that better financial management and less corruption in the company can't fix.
The doomsday scenario painted by Calderon and others, the critics contend, is an exaggeration aimed at forcing privatization.
"Petroleum profits are the people's, and there is no reason for them to be privatized," Lopez Obrador said here. "It's as simple as that."
But Calderon and his allies say that without private funds, the government will have to cut the money it takes from Pemex to finance the company's deep water exploration and production. Social programs and public works projects will suffer, they say.
"I've always been of the idea that oil resources should help us with the country's social spending and infrastructure," Calderon said. "Not the reverse."
Lopez Obrador's struggle - waged so far with speeches in provincial cities and arm-twisting in political backrooms - has solidified opposition to energy reforms both within his own party and among left-leaning members of the once-monolithic Institutional Revolutionary Party, or PRI.
He has called for a campaign of "national resistance" against privatization. The campaign is set to begin next Sunday with a demonstration outside Pemex's headquarters in Mexico City.
"It's all AMLO," political analyst Federico Estevez said, referring to Lopez Obrador by a popular nickname made up of his initials. "It's clear he's going to make his stand on the issue."
Pemex executives say Mexico's proven oil reserves have declined by more than half since the beginning of this decade. The 30-year-old Cantarell field, in the shallow waters at the foot of the Gulf of Mexico, is playing out. It has supplied more than two-thirds of the company's daily crude output.
Government and private experts say that no other easily exploitable oil, either offshore or on land, will make up the shortfall. The most viable source of new oil lies in the deep waters of the northern Gulf of Mexico, close to the U.S. boundary.
Mexico currently has neither the money nor expertise to reach that oil - up to 30 billion barrels of it by some estimates - which lies below some 9,000 feet of water and several more miles of earth.
A bilateral treaty that prohibits oil production along the international line will expire two years from now. American and other foreign companies recently have hit gusher wells in those waters, fueling concerns here that Mexico will be shut out of any bonanza there because it lacks funds and expertise.
"We must go after that oil," Calderon said. "And that's what the discussion of this issue must deal with. It's not a problem of more money. It's a problem of technology and operational capacity."
Lopez Obrador and other critics argue that the company can simply hire outside companies to drill the deep water wells. But industry experts say the foreign energy companies that have the technology will want a share of the oil that's found, to book on their own balance sheets.
"That kind of technology is not on the market, it's not for sale," said Roseanne Franco, an analyst at PFC Energy, the consulting firm.
Some sort of reform proposal had been expected to be taken up by the Mexican Congress in the current legislative session, which ends April 30.
But Mexico's oil minister said in a televised interview that the administration now planned only to make its general proposal known by the end of March. Getting any law passed in the remaining month of the session seems unlikely.
"There had been the expectation that this was going to happen this session," said Ruben Camarillo, a senator from Calderon's National Action Party who is a ranking member of the Senate's Energy Committee, which will be key in any reform effort.
"That would have been preferable," he said. "But we never set any deadline."
Central to any deal is the congressional delegation of the PRI, which ruled Mexico for 71 years until its defeat in the 2000 presidential elections.
The former ruling party has proved Calderon's ally in passing other legislation, such as new labor laws last year.
But nationalized oil is dear to many PRI politicians. And some fear allying with Calderon on the issue will hurt the party in next year's congressional elections.
"We're having an internal debate about what to do," said Francisco Rojas, who headed Pemex in the early 1990s and now directs a PRI think tank. "There are many of us who think that Pemex should not be opened up to private investment. I think most of us are against it." |
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