It’s been a bad couple of weeks for Petroleos Mexicanos, Mexico’s state-run oil monopoly.
A storm in the Gulf of Mexico caused an oil rig to slam into two wells Oct. 24, killing 21 workers. Continued bad weather made repairs impossible, and Pemex was forced to cut oil production by 600,000 barrels per day, or about 20 percent.
Then Oct. 30, a pipeline burst in Veracruz, spilling 10,000 barrels of diesel into the drinking water supply.
These troubles led to a predictable outcry over Pemex’s maintenance and safety standards — and helped push oil prices frighteningly close to $100 a barrel. But Mexico’s people and politicians continue to resist changes that would address the deeper problems threatening the future of the world’s fifth-largest oil producer.
Mexico’s oil production is at a seven-year low, down 8 percent since 2004. Its reserves have dropped by half since 2002, mostly because it lacks the technology and expertise to explore promising oil fields deep beneath the Gulf of Mexico. Current reserves would last only about nine years.
Pemex is in desperate need of capital investment, but it doesn’t have the money. The Mexican government relies on oil for 35 percent of its income; last year it collected $54 billion in taxes from Pemex, or approximately half the company’s sales. Pemex also is saddled with $52 billion in debt (more than twice that if you count its unfunded pension obligations).
The company can’t afford the $20 billion or so that experts say it should be investing each year to stay competitive. But Mexico’s constitution bars private investment in the oil industry, which was nationalized 80 years ago.
Pemex employees are loath to accept changes that would reduce their salaries and benefits, and their oil workers union is closely aligned with the Institutional Revolutionary Party, or PRI, the third-largest voting bloc in Congress. A deep nationalist sentiment also makes privatization, and especially foreign investment, politically taboo.
Former President Vicente Fox — whose election in 2000 ended 71 years of uninterrupted PRI rule — failed to get a constitutional amendment to allow private investment.
But the dramatic downturn in Mexico’s oil fortunes is helping to generate support for the more limited reforms pushed by Fox’s successor, Felipe Calderon, that would allow Pemex to run more like a business and less like a government agency. Pemex also is exploring relationships with other state-owned oil companies, though they would operate through service contracts rather than sharing ownership of oil resources.
These are small but meaningful steps that should be embraced quickly. Mexico’s reluctance to open its oil industry to investors is preventing it from reaping the benefits of record oil prices and slowing its economic growth. By resisting reform, Mexicans are only hurting themselves.
