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 Editorials | Opinions | May 2008 
Obstacles and Opportunities in Mexico's Pemex Debate
 Allan Wall - PVNN
 |  | Mexican petroleum is closely related to feelings about Mexican sovereignty - after all, doesn't the oil belong to Mexico and aren't foreigners trying to steal it? |  | | | |
On May 13th, 2008, the 71-day formal debate over the future of Mexico's oil monopoly PEMEX (Petróleos Mexicanos) began.
Petroleum is a great source of wealth for Mexico. If the country had an efficient petroleum industry, not only could it export more oil, but Mexican petrochemical industries could be greatly expanded. Petroleum-based products such as fertilizers, detergents, rubber, paint, dye, food preservatives and plastics could be exported, providing more needed jobs for Mexicans in Mexico.
Instead, PEMEX is a mess. It's heavily-indebted and according to its own calculations, only has about 9 years of proven reserves left. The company lacks the funds and expertise to exploit the large quantity of petroleum probably lying beneath its offshore territorial waters. But no, PEMEX is not allowed to partner with private oil companies in those waters. It can only subcontract private companies at set fees, which doesn't provide a great incentive for said companies.
Meanwhile, the Mexican government uses PEMEX as a golden goose, to supply 40% of the federal budget. So it can't be run like a regular oil company.
There are several psychological obstacles to the reform of PEMEX.
In 1938, president Lazaro Cardenas nationalized Mexico's petroleum, kicked out the foreign oil companies and founded PEMEX. This story is recounted to Mexican schoolchildren every March 18th on Oil Expropriation Day. The belief that the oil belongs to Mexico and mustn't be privatized is deeply rooted.
Ironically, however, Lazaro Cardenas, the patron saint of Mexico's oil, was not as rigid as today's opponents of private investment. In fact, Lazaro Cardenas allowed a role for private oil companies to partner with PEMEX.
In 1939, a year after the oil expropriation, Lazaro Cardenas and his administration altered Mexican law to allow private companies to sign contracts with PEMEX, in which the private company (not PEMEX, as today) assumed the risks of exploring for oil. Today, that would be strictly forbidden.
It was not until 1958, under president Adolfo Ruiz Cortines, that all petroleum-related activities were monopolized by the state.
So today's opponents of private investment, including Lopez Obrador and Cuauhtemoc Cardenas (Lazaro's son ), have it backwards. They invoke the saintly name of Lazaro Cardenas to attack a policy that was supported by Lazaro Cardenas!
I get the impression that most Mexicans, including many Mexican politicians, don't really know much about the oil industry and how it operates.
They talk about the resource as if all Mexico's oil is in a big tank somewhere, and its spigot must be guarded against oil thieves, always on the verge of stealing it!
But the petroleum industry is a very sophisticated one. It requires specialized equipment, skilled personnel including geologists, engineers, and oil-field workers who know what they're doing.
Offshore drilling involves the placement of massive oil platforms in the ocean, and is very expensive. British Petroleum, for example, is drilling over 10,000 feet in the Gulf of Mexico, in U.S. territorial waters not far from Mexico's waters. For every deep-water discovery, it costs BP more than a billion dollars.
Despite all the hysteria and hoopla, the PEMEX reform proposal made by the Calderon Administration in April doesn't even envisage a privatization of PEMEX. It's really a reform lite, though you wouldn't guess that from the hysteria being whipped up by opposition politicians and activists.
Another big obstacle to oil reform is that many Mexican politicians see profit as a dirty word and the private sector as evil. But even Cuba's communist dictator Fidel Castro opened the doors to allow private drilling for oil, in Cuba's offshore waters. In Mexico though, prominent voices in the PEMEX debate decry any form of private money whatsoever.
Mexican petroleum is closely related to feelings about Mexican sovereignty - after all, doesn't the oil belong to Mexico and aren't foreigners trying to steal it?
(That's a good reason too why American politicians should absolutely not be getting involved in the PEMEX debate, that would be highly counter-productive).
But how is PEMEX defending Mexican sovereignty today, when the company is doing downhill, it only has 6 refineries on Mexican soil (and another in Texas), 40% of Mexico's gasoline must be imported, and the country is a net importer of natural gas?
In the great PEMEX debate, will Mexican lawmakers really face the facts and deal with them - or will it mostly be hot air and political posturing?
That's the real question. |
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