In the next five years, Mexican oil monopoly Petroleos Mexicanos (Pemex) needs to spend up to $33 billion on exploration and production activities or its crude and natural gas production could decline by as much as one third, forcing the country to become more of an importer than an exporter, according to the company’s director. Mexico currently is the seventh largest oil producer in the world, and is one of the top three exporters to the United States.

Raul Munoz Leos, who took over Pemex last December at the urging of President Vicente Fox, said in a paper for the Mexican Academy of Engineering this week that between 2002-2006, the money would be used to lift the crude output to about 3.8 MMbbl/d from its current 3.5 MMbbl/d in the first half of this year. The money also would push the natural gas output to 6 Bcf/d, up from 4.56 Bcf/d, which was the average in the first six months of this year.

Munoz, citing quantitative estimates by geologists, engineers and economists, said this week that the country’s declining investment in its energy sector over the past two decades has pushed it to nearly a crisis stage, which could in turn lead to falling output — putting the country at a higher risk of becoming an importer of even more energy supplies.

If Mexico were to maintain its current investment pace of the past 10 years, Munoz noted that oil output would fall by up to a third, while gas would fall slightly less. Pemex has to remain solvent, he noted, because it supplies more than a third of Mexico’s overall revenue. Not only would Pemex become a “growing importer,” he said, but it would “lose capacity of competence” in the international market.

Rising production costs also have hurt Pemex, he said. In 2000, Pemex paid an average cost of $4.63/bbl to produce oil, up from $3/bbl a few years ago, because of higher investments at the peripheries in its fields and the need to move to the actual drilling site. To counter the problems, Munoz noted that Pemex needed to find “legal ways” to bring in private investment to meet the country’s rising costs. Under Mexico’s constitution, the government controls Pemex and does not allow ownership by outside companies.

An unconfirmed report in the Reforma, a Mexican newspaper, said that a reform plan is nearing completion by the country’s ministry officials, which could open up Pemex to private investment. According to the newspaper, only nuclear energy and oil production would be reserved for Mexican authority, and would allow private investment for the first time in refining, basic petrochemicals — known as gas processing in the United States — and E&P of non-associated natural gas.

Pemex would remain under Mexican control, but would face private competition. Among other things, the plan apparently proposes concessions for the E&P of natural gas, with the state setting production timetables and volumes and payments that could be made in kind when the gas is extracted.

The Mexican Congress is scheduled to open its next session in September, and Fox, who ran a reform campaign in his upset win in 2000, is rumored to be pushing for a more free market structure of the country’s energy industry. Any energy reform legislation, however, allowing for more private investment by businesses outside of Mexico, is expected to face heavy opposition in Congress.

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