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 Business News | February 2007 
Mexico's Pemex Faces Drying Field, No Funds to Update Refineries
 Sergio Solache - azcentral.com
When an al-Qaida faction this week urged militants to attack U.S. oil suppliers in Mexico, Canada and Venezuela, it was a recognition of the powerful world role played by Petroleos Mexicanos, the Mexican oil monopoly.
Government-owned Pemex is the United States' second-largest supplier of petroleum after Canada and ranks No. 6 among the world's biggest oil exporters. The threat by al-Qaida in the Arabian Peninsula prompted the Mexican government to send troops to bolster security at pipelines and refineries on Friday.
In the long term, Pemex has other problems. The company's main Cantarell oil field in southern Mexico is drying up. There is not enough money to tap deeper reserves in the Gulf of Mexico, and much of the company's machinery is out of date. Pemex can't even refine enough gasoline to meet its national demand, forcing Mexico to send its oil to foreign refineries, then re-import the finished fuel.
Compounding Pemex's problems is the Mexican government's addiction to the billions of dollars generated by oil sales. Pemex accounts for 40 percent of the federal government's total income. Change has been made more difficult because of Pemex's all-encompassing social welfare system and a nationalism that keeps foreign investment out.
In 2005, the company posted $7 billion in losses, despite high oil prices that brought in $83.4 billion in revenues. Of the 34 oil companies on the Fortune 500 list of companies in 2006, Pemex was the only one that lost money.
"If we want to compete and win in the world that is competing against us, we need an energy sector that generates the revenues needed to push production and improve the lives of consumers," President Felipe Calderón said this week.
But Pemex has also kept fuel prices stable during crisis and wild fluctuations in the United States. Some argue that the organization was never meant to operate as a profit-driven enterprise but was created to keep wealth in the country.
Patriots and petroleum
The logo of Pemex, an eagle inside a red drop, is as familiar to Mexicans as the national flag. Over the years, it has become a symbol of the country's economic independence.
Until the 1930s, Mexico's oil sector was dominated by foreign oil barons. The 1910-20 Mexican Revolution set off a series of uprisings by oil workers demanding better wages and working conditions. In 1938, President Lazaro Cárdenas nationalized the entire industry and created Pemex to manage the country's oil wealth.
Pemex now has more than 5,000 wells in production, most of them on Mexico's Gulf Coast. It also has 7,000 service stations and 2,900 miles of oil pipelines. There even is a company town of nearly 6,000 people in the Tabasco state called Pemex City.
All of Pemex's infrastructure is managed by four subsidiaries that run its production, refineries and sales. Many experts say this four-armed bureaucracy is a waste of money.
"There's an inadequate organization, which doubles the costs," said Fluvio Ruíz Alarcón, a legislative adviser on energy in the Mexican Congress.
Pemex also has a huge payroll of more than 140,000 people. Pemex produces 27 barrels of oil daily per employee, or about $1,530 at current prices, compared with 71 barrels in Petroleos de Venezuela, another state-owned company, according to Petroleum Intelligence Weekly. Saudi Aramco, Saudi Arabia's state oil firm, produces 182 barrels per employee.
The large workforce has saddled the company with $34 billion in pension liabilities, in addition to $46 billion in other debts. The company's high debt load and tax burden - Pemex pays 62 percent of its revenues in taxes - means it could have trouble getting financing to explore for more oil deposits.
In the ancient Toltec capital of Tula, 15-foot-high statues of warriors called the Atlantes watch over the plains of central Mexico. Miles away loom modern giants: the silvery, steaming towers of Pemex's Miguel Hidalgo Refinery.
Here, huge tanks heat crude oil piped 130 miles from the town of Novoteapa on the Gulf of Mexico.
But there's a problem: Miguel Hidalgo and the six other refineries in Mexico can't keep up with demand. So Mexico sells its crude oil to other nations, then imports it back as gasoline or other products. In 2005, Mexico imported 333,700 barrels per day of refined petroleum products, about half of it in gasoline.
Pemex officials say the government needs to free up more of the company's revenues so it can build and upgrade refineries.
"The need is to modernize," said Enrique Hernández, technical aide to the Miguel Hidalgo refinery's manager. "In Japan, they have a refinery of the same quality as ours, but it fits in a bottle cap."
Pemex's aging infrastructure has also led to a series of spills and pipeline explosions. Already in 2007, Pemex reported a spill of 50 barrels of crude and a pipeline fire in the southern state of Tabasco.
Finding solutions
Calderón is a former energy minister who has promised to overhaul Pemex. But he faces an uphill battle. Calderón's National Action Party controls only 206 of the 500 seats in Congress and just 52 of the 128 Senate seats.
As a first step, Calderón on Tuesday announced the creation of audit committees to oversee Pemex and the Federal Electricity Commission, Mexico's electricity monopoly. The U.S. would like to see more foreign investment in Pemex to ensure a good supply of oil and reduce its dependence on the Middle East and Venezuela.
In January, U.S. Director of National Intelligence John Negroponte said countries with state-controlled oil companies, like Mexico, have to realize that private investment is a positive factor.
Negroponte is a former ambassador to Mexico. But not everyone thinks Mexico needs foreign capital to succeed, and many left-leaning parties oppose Calderón's reforms.
"What they want to do with this initiative is privatize Pemex," said Claudia Sheinbaum, natural-resources secretary for a coalition of opposition parties.
Meanwhile, some analysts suggest the world is measuring Pemex with the wrong yardstick. Pemex was created as a way of using Mexico's oil to help the country, said George Baker, research director for Energia.com, a Houston-based consultancy.
As a profitmaking company, Pemex is inefficient. But as a social agency, a force for economic development and a generator of taxes, it has been wildly successful, he said.
"From the government perspective, you might say that Pemex was never meant to be purely an oil company," Baker said.
Republic reporter Chris Hawley contributed to this article. |
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