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| Caribbean-Latin America |
| As Mexico's Oil Giant Struggles, Its Laws Block Foreign Help |
| 2005-06-20 |
| Born in Nationalist Fervor, Pemex Faces Drying Wells; CEO Wants to Open Doors Gasoline Imports From Texas MEXICO CITY -- Mexico is the birthplace of oil nationalism. In 1938, it kicked out foreign oil companies and set up a state company with the seized assets. "The oil is ours," President Läzaro Cärdenas declared, and proud Mexicans donated jewelry and chickens to help compensate the foreigners. The nation still celebrates the event: In the tropical oil town of Poza Rica ("Rich Well"), a new mural in the central square shows a fat, cigar-chomping foreign capitalist abusing local oil workers until Mr. Cärdenas frees them. Today, the philosophy that created Petróleos Mexicanos threatens to ruin it. Pemex, as it is called, is running out of easy oil fields to drill, and it is barred by the Mexican constitution from tying up with foreign companies that could bring in advanced technology and help it find more oil. In natural gas, Pemex's discovery efforts have been so weak that the country must now import from the U.S. even though energy executives think Mexico's gas resources are so big that they could generate billions of dollars a year in exports if tapped. Even after big job cuts and a cleanup of corruption, the company remains among the most inefficient in the industry. Pemex is still the world's third-biggest producer of crude oil and Latin America's largest company, with $69 billion in revenue and 142,000 employees. Thanks to high oil prices, it contributed $42 billion in taxes last year to Mexico's government coffers, one-third of total tax revenue. But the risk of a crash in oil and gas production is so high that for the first time in the company's 67-year history, Pemex's own management publicly says Mexican lawmakers must open the door to deals in Mexico with foreigners. "We Mexicans have oil nationalism in our DNA. But unless we carry out an intelligent opening, we're going to have our backs against the wall someday and will have to sell our oil reserves," warns LuÃÂs Ramirez Corzo, who took over the company's top spot last November. An overhaul of Pemex, besides helping the company compete, could give a boost to Mexican businesses plagued by high costs. Energy prices are so high in Mexico that it's sometimes cheaper to make textiles in the U.S. despite lower Mexican wages, says José de Jesús Valdez, head of petrochemicals at conglomerate Alfa SA, which makes polyester fibers. "In Mexico, logic ends where our constitution begins," says LuÃÂs Farias, vice president of energy at cement giant Cemex SA, which generates its own electricity with petroleum residues and even oily rags to reduce spending on natural gas. The U.S. is also concerned about the fate of Mexico's oil industry. Mexico accounts for 16% of U.S. oil imports, second only to Canada and ahead of Saudi Arabia. If Mexico can pump out more oil and gas, that could ease the supply pressures that have pushed prices up over the past year. A Political Creature But from its first day, Pemex has been a political creature -- and politics has blocked all significant change. An opening of Mexico's energy market is one of many economic changes proposed by President Vicente Fox, and they have almost invariably been shot down in a Congress controlled by the Institutional Revolutionary Party, or PRI. The PRI governed Mexico unchallenged for seven decades until its candidate was defeated by Mr. Fox in the 2000 presidential election. Mr. Fox is trying again, negotiating with opposition parties to craft a bill that would allow Pemex to co-own oil and gas on Mexican territory with a foreign company. But with only 13 months until presidential elections -- Mr. Fox isn't allowed to run again -- he faces daunting odds in getting the bill passed. Those who oppose the bill argue that Mexico's earlier attempts to overhaul state companies ended up in disaster for average Mexicans -- and huge profits for a handful of wealthy investors. Businessman Carlos Slim, who bought Mexico's former state telephone monopoly, has since become the world's third-richest man with a fortune estimated at $24 billion, while Mexicans now pay among the world's highest prices for phone service. The country's privatized banks, which went bankrupt during the peso crisis in 1995, had to be bailed out by taxpayers. A few Mexican bank owners then made big profits selling the banks to foreigners, and Citigroup Inc. now owns Mexico's biggest bank. "Oil built our country. Why would we want to give it up to the Americans?" asks Manuel Bartlett, a leading PRI senator. Umm, because they would pay for it??? Adrian Lajous, a former Pemex chief executive, says would-be reformers are trying to move too quickly. "I am convinced Mexico must maintain a large-scale, integrated, dominant oil firm with a clear national identity," he says. Another factor behind the inertia is Pemex's considerable success over the years in proving skeptics wrong. When the company was first created, Standard Oil of New Jersey and other American companies predicted a poor nation could never learn the oil business. They organized boycotts to retaliate for Mexico's expropriation of foreign-owned assets. By the 1950s, however, Pemex was pumping out plenty of oil and building its reserves. Brazil and other countries cited Mexico's success when they nationalized their own oil industries. By the late 1960s, Pemex's fields along Mexico's eastern coast, known as the Golden Belt, were beginning to dry up and some predicted doom again. Then it made several big strikes. One of them came in the mid-1970s after a fisherman named Juan Cantarell spotted oil slicks around his dinghy and reported them to Pemex. The Cantarell oil field turned out to be one of history's great gushers. Jorge Nordhausen, now a Mexican senator, remembers working as a contractor during the field's early days. The oil spurted out of the seabed with such force, he says, that his team didn't even need pumps to get it to the nearest coast several miles away. With so much cash sloshing about, Pemex was a natural font of corruption. One former union leader built a baseball park with Pemex money, made every worker buy season tickets and pocketed the gate receipts. Last month, the government's bureaucracy watchdog fined six former Pemex officials, including former Chief Executive Rogelio Montemayor, accusing them of colluding with the union to funnel $127 million in Pemex money to fund the PRI's 2000 election campaign. Mr. Montemayor and the others deny the allegations in the "Pemexgate" scandal and are appealing the fines. Even now, Pemex chiefs estimate that corruption, including theft of gasoline, costs the company more than $1 billion a year. Vast Army Pemex long acted as a kind of social-welfare agency, hiring a vast army of workers. In the mid-1990s, the company slashed its work force by almost half, but the number of unionized employees has crept up again by about 5,000 under Mr. Fox. In the town of Poza Rica, local union leader Sergio Quiroz spends much of his day dealing with job-seekers who gather outside his office. "I try to say no, but if they persist for about a year, I eventually find them a spot," he says. It takes 27 Pemex workers to operate a well versus an industry average of 10. Now nature and time appear to be catching up with the company. Cantarell's bounty is expected to begin declining this year or next. Pemex says it can keep oil production at the current 3.4 million barrels a day for the next few years, but some analysts expect output to drop 20% by 2010. Pemex will have to scramble for new supplies in hard-to-reach places such as deep seabeds in the Gulf of Mexico. Absent new finds, Mexico could become a net oil importer within 10 years, Pemex says. Oil companies around the world face a similar challenge, but Pemex is especially ill-prepared to meet it. The company has never had to develop expertise in extracting oil from tough places. While some believe it could buy technology off the shelf, Pemex says that's difficult because key technologies are considered proprietary by their owners. Besides, "we don't even know what to buy," says Carlos Morales, head of exploration and production. RTWT at the link. This has huge implications for illegal immigration, the ability of China to buy influence and assets in Latin America and other issues as well. |
| Posted by:too true |
| #10 Frank G, maybe the adminstration should extend its policy of facilitating regime change in hostile regimes to Mexico. Also, given the dangerous business climate in Mexico, wouldn't be surprised if some of those chicoms and chavezcoms should have the same life expectancy as a Tijuana police chief. |
| Posted by: RWV 2005-06-20 21:22 |
| #9 should Mexico decide to sell Pemex to the Chicoms, I'd suggest a shutdown of the border and full expulsion of all illegals via roundup. Let the dice roll |
| Posted by: Frank G 2005-06-20 19:31 |
#8 Energy prices are so high in Mexico that it's sometimes cheaper to make textiles in the U.S. despite lower Mexican wages HAHAHAHAHAHAHAHAHAHAHA! (Does that make me a bad person? Good!) |
| Posted by: Barbara Skolaut 2005-06-20 17:16 |
| #7 Will the tendrils of the ChiCom or Venezuela appear in the shadows overnite probing the possibilities? The question is, what could we expect from Hugo's lackeys or the ChiComs setting up shop next door? |
| Posted by: Bomb-a-rama 2005-06-20 16:00 |
| #6 Now nature and time appear to be catching up with the company. Softlee, softlee catchee monkey.... |
| Posted by: N guard 2005-06-20 14:21 |
| #5 Bingo! That's sure what it looks like to me -- not good news. |
| Posted by: too true 2005-06-20 13:38 |
| #4 Careful... the stage is being set outsourcing management of PEMEX. Will the tendrils of the ChiCom or Venezuela appear in the shadows overnite probing the possibilities? Don't laugh... search around and take a look at who is outsourced to manage the post and lock areas of the Panama Canal. |
| Posted by: Flavins Flineque6690 2005-06-20 13:23 |
| #3 We spend billions and kill tens of thousands securing Iraq's oil and we can't scheme our way into the Mexican reserves. Nuke em. MM |
| Posted by: Mountain Man 2005-06-20 12:48 |
| #2 Phuque them. Let 'em rot. |
| Posted by: Bomb-a-rama 2005-06-20 12:06 |
| #1 Notice the xenophobic aspects of the Mexican Constitution never get highlighted in MSM. American prosperity is help by large foreign investments from the British, Dutch, Japanese, etc. The unemployment and poverty which is systemic to the Mexican economic environment is permanent with the xenophobia and corruption that appears not to be correctable short of a revolution. |
| Posted by: Jong Cravirong9792 2005-06-20 11:58 |