Pemex Director Backs Off Privatization, but Urges More Investment

The general director of Mexico's oil and gas monopoly Petroleos Mexicanos (Pemex) said last week that while he supports more private investments in certain sectors to make the country's energy resources more efficient, the oil and gas industry will remain under government control. Raul Munoz Leos agreed that Mexico faces energy problems unless changes are made, but said the country can get from here to there without privatization.

However, it won't be easy. Munoz estimates that investments in Mexico's energy infrastructure should total US$9 billion a year for at least the next several years --- and stressed that two-thirds need to be earmarked for oil and gas exploration alone. Munoz's estimate of oil and gas capital investment is about double an amount estimated before President Vicente Fox took office last November.

In a Mexico City press conference, Munoz said he agreed with critics that the country's resources are limited and said that private investment is necessary --- but stressed that private investment into the oil and gas exploration arena has to be regulated by Mexico. However, Munoz also said that before Mexico can take full advantage of its abundant oil and gas resources, the country's lawmakers have to put clear operating conditions in place for both investors and Pemex.

In the past two decades, Munoz said that Pemex has only gotten about half of the budget resources it needs to finance its operations. Now, he said, Pemex faces a crisis because oil reserves and gas investments are critically low.

"This has provoked a crisis in oil reserves that has already extended to production and should not be allowed to go on any longer," Munoz said.

The production decrease in some areas of Mexico is "already a reality," Munoz said. "Pemex is not in a good position" because it has not been able to invest in projects that would generate more revenue. Mexico is the world's seventh largest oil producer, but the government relies on oil for one-third of its revenues and does not necessary return the investment back to Pemex.

Munoz said that Pemex would continue to look for new ways to add more reserves under Mexico's current regulatory structure. One possibility will be to undertake more service contracts with foreign companies, such as the Burgos Basin exploration deal with Canadian's Precision Drilling Corp. and the U.S.-based BJ Services made earlier this year (see NGI, March 19).

Besides service contracts, Munoz also envisions Pemex using the regulatory structure to encourage more private investment in gas imports, transportation, distribution and petrochemicals, which would then give Pemex more to spend on exploration and production.

Production fields in the country are declining and reserves are falling because of the under investments. At 2001 dollar values, Munoz said investments have fallen to US$5.2 billion in 2000, down from US13.3 billion in 1981. Exploratory drilling and development drilling also have fallen in the past 30 years he said. Pemex's proven oil reserves posted a 4% decline in 2000 from 1999, down to 32.6 B bbl, while probable reserves rose slightly to 12.2 B bbl. Another sign of decline, Munoz noted, was in that after several discoveries in the 1970s and early 1980s, Pemex did not have another significant oil and gas find until the offshore Sihil field in 1999.

Although opposed to privatization, Munoz announced that beginning in August, Pemex would allow foreign companies to import liquefied petroleum gas to reduce price volatility in the Mexican natural gas market. LPG imports until now have been under the domain of Pemex alone. In March, Mexico officials began regulating domestic LPG prices to stop a price surge and to bring more order to the market.

Marcos Ramirez, director of Pemex's gas and petrochemicals division, said the change would allow energy companies with operations along the U.S.-Mexico border to import their own supplies.

"What is being sought is more players in the Mexican market," Ramirez said. "There has been no change in the volatility of prices."

Currently, the country has more than 400 LPG distributors and uses about 330 bbl/d of LPG. Mexico produces 200,000 bbl/d for residential use, and Pemex imports the remaining amount, mostly from the United States.

©Copyright 2001 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.