Is Mexico ready to join the oil-and-gas boom?
posted at 7:01 pm on February 3, 2013 by Erika Johnsen
Mexico nationalized their oil industry in the 1930s, essentially giving private foreign companies as well as their technology and capital the ol’ heave-ho, and state-owned Pemex has dominated the oil-and-gas ever since. The oil giant is Mexico’s largest company by sales and provides revenue that accounts for more than a third of Mexico’s budget. Chronic mismanagement and technical deficiencies have lately contributed to its decline, however, and experts have predicted that the company will lose its export power if it doesn’t make some major changes, and soon.
President Enrique Peña Nieto, elected last July, is looking to do just that, via the WSJ:
In the past two decades, Mexico has allowed private investment in some areas, such as natural gas storage and distribution, and electricity generation, but Pemex has kept a firm grip on the oil and gas sector. Many experts say that unless Mexico opens up its oil exploration to private firms, it is likely to cease exporting major quantities of oil by the end of 2018.
President Enrique Peña Nieto wants to change that, letting private companies partner with Pemex to search for oil. But, like presidents before him, he has been forced in recent weeks to reassure Mexicans that he has no plans to privatize the company itself. Analysts expect the president to negotiate with the country’s opposition in the coming months to agree on a plan for opening up the oil sector.
The possibility has investors hopefully sniffing the air, although there are definite political challenges to overcome before the industry can really be unleashed — but a gigantic and still-unexplained explosion at Pemex’s headquarters earlier this week may put some critical pressure on the endeavor, reports the Financial Times:
This week, Mexican eyes again scanned the headquarters of the eighth-biggest oil company in the world by production after a mysterious explosion on Thursday afternoon in the B2 administrative building next door left 32 people dead and about 100 injured. …
Pemex – a symbol in Mexico of energy self-sufficiency but also security problems, oil theft and inefficiency – has suffered several fatal gas explosions. …
This week’s incident, however, has cast further doubt on the company’s ability to modernize…
“So what will the Pemex explosion mean for the national debate on energy reform? It puts Pemex firmly in the spotlight for a start,” tweeted Duncan Wood, director of the Mexico Institute at the Woodrow Wilson centre in Washington.
“Pemex needs to be modernised from top to bottom, from exploration and production to basic practices … Will legislators [now] recognise that Pemex has fallen behind the times?”
All of this is happening as Mexico’s overall economy is lately showing signs of more robust growth and competitiveness — the economy grew almost four percent in 2012, practically double the average annual growth rate of this century — and Nieto is working for more business-friendly and government-efficiency focused reforms. The country still has huge systemic problems, cartel-fueled violence and drug wars figuring prominently among them, but it looks like Mexico isn’t entirely without reasons for optimism.