Mexico's unfolding oil crash. Pemex, is accustomed to being the victim of ill-conceived government meddling, probably because it provides close to 40 percent of the government's revenue.
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Pemex also is in decline. Since 2005, daily production has dropped more than 300,000 barrels per day, or roughly 10 percent -- and this at a time of historically high global prices. Reserves have been falling since the mid-1980s. This is relevant to U.S. consumers, because Mexico is the second-largest exporter of oil to the United States, behind Canada.
Mexico, which is not a member of the Organization of Petroleum Exporting Countries, was the world's sixth-largest oil producer in 2006. But many analysts believe that Mexican production has peaked and will decline in coming years, according to the U.S. Energy Information Administration.
Combine declining production with Pemex's out-size contribution to the Mexican government's annual budget, and the need for reform appears urgent. Since the beginning of the year, Mexican politicians have been wrapped up in a debate about how to revive Pemex, which controls all aspects of oil in Mexico, from offshore exploration to the gas pump. It is riddled with wastefulness.
Mexico has to import more than 40 percent of its gasoline because of a lack of refining capacity. It then resells it at subsidized prices to the public. About $20 billion will be spent on the subsidy this year. It is hard to get rid of, because of the direct political impact that ending it would have and because of fear of provoking inflation.
All parties agree that things look bad. There is also some consensus that deep-water exploration of the type that has been so successful in Brazil is now necessary. But there is no agreement about how to fund it, or where to obtain the technical expertise for deep-water drilling. This reveals much about Mexico's underlying thinking about the respective roles of the state and the private sector. |
