Petróleos Mexicanos

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Petróleos Mexicanos

Petróleos Mexicanos (Pemex) is Mexico's national oil company, established in 1938 as the result of expropriation of the oil industry by President Lázaro Cárdenas. Pemex has been the world's largest offshore oil and gas producer for more than a quarter-century, and its reputation lies in its mastery of shallow-water oil and gas production. In recent years it has produced upward of 3.0 million barrels per day of crude oil. But the future for Pemex in this activity—as well as in other areas of refining, chemicals, gas processing, and pipelines—is uncertain. The uncertainty arises from three causes: the decline in output from its main oil field, the Cantarell complex, which reached its peak in October 2004 at 2.4 million barrels per day; the stagnation in the development of infrastructure in the areas of refining, gas, and chemicals; and the future of the financing for Pemex operations and investment. These topics will be addressed in reverse order.

FINANCES

The question of fiscal reform in Mexico goes far beyond matters related to Pemex. Whereas in Latin America on average, taxes as a share of GDP are 20 percent, in Mexico tax revenue is under 10 percent perhaps. Most Mexicans do not pay taxes: The poor often cannot and the rich find loopholes. The result is that petroleum products are the most reliable way to generate tax revenue for general government services.

Oil-related taxes in a given year contribute 30 to 40 percent of total public revenues. For Pemex, this situation creates an intolerable burden: It forces the company to borrow money for activities and investments that should come from its own operating and capital budgets. Instead, any requirement—from pipeline maintenance to platform construction—can be turned into a "public works project" with contractor financing. This form of invisible debt is known by its acronym "Pidiregas." Pemex executives since the 1990s have argued for fiscal reform that would result in tax relief, but the government seems to be in no position to make up for lower Pemex taxes without restructuring Mexico's entire fiscal system.

INFRASTRUCTURE

No new refinery has been built in Mexico in more than twenty-five years, a period in which demand for petroleum products has risen by 50 percent. Pemex is therefore forced to import petroleum products in volumes approaching 300,000 b/d, about 50 percent more than its pipeline capacity. The result is that Pemex is forced to contract for the hauling services of a fleet of trucks known as pipas at a cost estimated at six to nine times that of pipeline transportation. Pemex's chemical unit was hoping for a big injection of private capital and technology in the proposed world-class ethylene plant known as Project Fénix, but negotiations fell apart when the government refused to grant tax relief in the form of discounted prices on energy.

UPSTREAM

Here the situation is made problematic owing to the unique features of Cantarell, Mexico's supergiant oil field. The challenge for Pemex is the replacement of Cantarell's declining output with production from other fields. Candidates are the KMZ complex, Chicontepec, and deepwater. Each of these has its subset of challenges with regard to finance, technology, and manpower. Pemex estimates that there may be as much as 30 billion barrels of oil equivalent (BOE) in the yet unfound deepwater fields. Pemex is seeking solutions that do not include international oil companies (IOCs) as equity partners. An intriguing drama is developing in relation to oil fields that may contain commercial deposits that cross the U.S.-Mexico maritime boundary.

Since inception, Pemex has functioned, and often thrived, despite the tremendous political and economic upheavals that have occurred almost every decade in modern Mexico. In the early twenty-first century, while Pemex faces large problems, it remains a bulwark to the Mexican economy and an integral part of the international energy market. Pemex's future will plausibly remain intertwined with the overall Mexican economy and subject to political calculations, likely encumbering Pemex and highlighting the sticky realities of state-owned enterprises.

See alsoPetroleum Industry .