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Pemex faces change or drying up

Dan Grech Jan 2, 2007

KAI RYSSDAL: Actual markets were closed in the U.S. today. The wonders of modern technology meant oil traders could still get a few licks in. Crude fell today. A tad under $61 a barrel. It’s a price that’s watched closely in Mexico, one of the world’s top oil producers.

For the past 68 years, every drop of oil in that country — from drilling rig to gas pump — has been controlled by Pemex (that’s the national petroleum monopoly). But Pemex is deep in the red. And it’s running out of its most basic product.

From the Americas Desk at WLRN, Marketplace’s Dan Grech reports.

DAN GRECH: Filling up on gas in Mexico starts like this:

[Sound of an attendant filling a customer’s car.]

ATTENDANT:“Buenas tardes.”

CUSTOMER:“Buenas tardes.”

ATTENDANT:“Cuanto vas a cargar?”

An attendant in a dark khaki uniform asks how much you want to spend. Then he unscrews your fuel cap. He punches in the octane. He inserts the nozzle. And, in front of your eyes, the attendant begins to gouge you.

Mexican authorities found that nine in 10 gas stations rig their pumps. Drivers lost a billion dollars last year.

At this Pemex station in Puebla, the gas pump clicks off, but the dials for pesos and liters go for another 15 seconds.

Driver Jorge Villasana works at a federal courthouse. He’s learned that there’s no justice at a Pemex gas pump.

JORGE VILLASANA [translator]: They constantly steal gas from me. And I can prove it. My car has a 40 liter tank, and sometimes they fill it to 42 liters. I say, “Oh, God!” This sort of thing is very common here in Mexico.

And yet…

VILLASANA:Si, estoy orgulloso de Pemex, como no?

Villasana says he takes pride in Pemex.

He sees the bilking at the pump as literally the price he pays for cherished state control over oil.

PAMELA STARR: The Mexicans don’t look at Pemex as a state owned corporation. They look at Pemex as their patrimony, as part of their Mexicanness.

That’s Pamela Starr of the Eurasia Group. She says people in the U.S. are unsentimental about gasoline. Americans switch stations over a few pennies a gallon.

But here in Mexico, national pride is tied with national oil. Many Mexicans would rather leave oil in the ground than look to outsiders — or God forbid the U.S. — for help.

That view dates all the way back to 1938. With the U.S. distracted by an imminent Second World War, Mexico nationalized U.S. and British oil companies.

Standard & Poors analyst Joydeep Mukherji.

JOYDEEP MUKHERJI: School kids are taught that this was one of the great acts of Mexican independence vis a vis the U.S. Well the world has changed since then, but there’s still a very strong political view that the oil under the soil can’t be turned over to foreign companies.

The corroded pipelines, the bloated workforce, the growing debt…when it comes to Pemex, Mexicans will forgive just about anything. Increasingly, however, this pride is looking like hubris — a fatal flaw.

Mexico’s main source of oil is the Cantarell field. It’s the second most productive field in the world after one in Saudi Arabia. And Cantarell’s running dry.

DAVID SHIELDS: Cantarell is probably going to decline very sharply in the next three years, starting now.

That’s energy analyst David Shields, author of two books on Pemex.

SHIELDS: Mexico currently produces just under 3.3 million barrels a day. We can expect production to fall to 2.5 million barrels a day, or perhaps even less next year.

The decline in production is like a dripping time bomb attached to the country’s economy. Pemex is racing to find new sources of oil to replace Cantarell. And it thinks it’s found one: up to 45 billion barrels hidden deep in the waters of the Gulf of Mexico.

Problem is, Pemex has no way to get it out. It doesn’t have the cash or the expertise to drill for it. And national pride, not to mention a clause in the constitution, blocks partnerships with foreign or private firms.

The Eurasia Group’s Pamela Starr says Pemex won’t be able to stop its leak any time soon.

STARR: Geologically, the potential sources of petroleum in Mexico are hard to extract. It’s expensive, it’s going to require in some cases technological innovation, and it’s going to take time.

Time is one thing President-elect Felipe Calderon doesn’t have. One-third of his federal budget depends on Pemex’s declining revenue.

That decline is bad news for the U.S. as well. Pemex supplies 11 percent of the oil used in the United States.

In Mexico, I’m Dan Grech for Marketplace.

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