Change Proposed for Mexican Oil Monopoly in Crisis

Demonstrators in Oaxaca, Mexico, protest Mexican President Felipe Calderon's plan to reform Pemex. i i

Demonstrators in Oaxaca, Mexico, protest Mexican President Felipe Calderon's plan to reform Petroleos Mexicana, or Pemex, the national oil company. Jason Beaubien/NPR hide caption

itoggle caption Jason Beaubien/NPR
Demonstrators in Oaxaca, Mexico, protest Mexican President Felipe Calderon's plan to reform Pemex.

Demonstrators in Oaxaca, Mexico, protest Mexican President Felipe Calderon's plan to reform Petroleos Mexicana, or Pemex, the national oil company.

Jason Beaubien/NPR
Graffiti in Oaxaca after a protest against Calderon's reform plan for Pemex i i

Graffiti in Oaxaca after a protest against Calderon's reform plan for Pemex. Opponents of the plan say the president is privatizing national resources. But energy analysts say that without reform, Mexico could run out of oil within a decade. Jason Beaubien/NPR hide caption

itoggle caption Jason Beaubien/NPR
Graffiti in Oaxaca after a protest against Calderon's reform plan for Pemex

Graffiti in Oaxaca after a protest against Calderon's reform plan for Pemex. Opponents of the plan say the president is privatizing national resources. But energy analysts say that without reform, Mexico could run out of oil within a decade.

Jason Beaubien/NPR

Mexico's state-run oil company — Petroleos Mexicanos, or Pemex — is in crisis. Its aging refineries can no longer meet domestic demand. And reserves are dropping so quickly that the world's sixth-largest oil producer could run out of oil within a decade.

The president is pushing reform of the operation, but the proposal faces stiff resistance from opposition lawmakers.

When President Felipe Calderon first put forward his Pemex reform proposal, leftist lawmakers took over Congress and barricaded themselves in for two weeks, blasting the president's reform plan as "the privatization of Pemex."

Mexico's Constitution bans foreign companies from investing in or profiting from the nation's oil.

Calderon's proposal would allow Pemex to offer bonuses and other incentives to foreign companies to drill new wells, build new refineries and provide other services.

While Congress is considering the Pemex reform plan, the fate of Pemex is being discussed across the country. At a forum at UNAM, the Universidad Nacional Autonoma de Mexico, economist David Ibarra called the current state of Pemex a disaster.

Ibarra says that for decades, the government has stripped Pemex of the capital it needs to upgrade its infrastructure and search for new oil reserves.

Instead, he says, Pemex has served as a cash cow for the government, providing more than 40 percent of Mexico's national budget.

And Ibarra says the national oil company desperately needs to be reformed.

The problem, though, is what kind of reform, "because so far, Pemex has been paying too much in taxes, so [it] has no net worth right now," Ibarra says.

But the leftist Party of the Democratic Revolution, or PRD, has vowed to oppose any reform that gives international — and particularly U.S. oil companies — a stake in Mexico's oil. PRD Sen. Francisco Javier Castellon Fonseca says Calderon's reforms pose a threat to national security and sovereignty.

"It's fundamental that the nation, the government, the state, maintain its presence and control over Mexico's oil," Fonseca says.

And ordinary Mexicans have reason to be skeptical about private investors getting access to state enterprises.

Mexican businessman Carlos Slim became the richest man in the world in 2007, in part by making billions from the privatization of the national phone company, Telmex.

Calderon's party, the conservative National Action Party, or PAN, is fighting an uphill battle to win public support for changes at Mexico's oil monopoly.

In radio ads, Calderon's party says Pemex isn't being privatized, it's being strengthened. The president's plan would still bar direct foreign investment in oil exploration.

David Shields, an independent energy analyst in Mexico City, says Calderon's reform plan doesn't go far enough.

"I think Pemex is in a situation of what I call productive and operative collapse," he says.

Shields points out that Pemex's production is down 8 percent from last year. Pemex currently is the third-largest supplier of oil to the U.S. — behind Saudi Arabia and Canada — but that might not continue. Mexican oil exports dropped 12 percent last year, and reserves are declining rapidly.

Pemex doesn't have the resources to search for new deep-water fields in the Gulf of Mexico, Shields says. And without a change in the law, Pemex can't make partnerships with international oil companies that have experience in doing such deep-water drilling.

Mexican oil production peaked at 3.4 million barrels a day three years ago, Shields says. It is now down to 2.8 million, and he predicts it will drop to 2 million barrels a day before flattening out.

He calls it a "rather dramatic drop."

And it's especially dramatic for a country that relies on its oil to fund almost half its budget for roads, schools, hospitals and other infrastructure.

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