[BretLudwig]

Memo From Mexico, By Allan Wall
PEMEX Fritters Away Mexicos Oil Wealth. Closing The Borders Would Help

"Mexican poverty is constantly used to browbeat Americans into accepting
mass immigration (legal and illegal) from Mexico.

After all, how could you refuse poor Mexicans from entering the United
States€”they are from a very poor country, right? Theyll starve to
death otherwise, right?

Well, maybe Mexico is poor in comparison to the United States. But by
world standards its certainly not among the poorest. And its people
arent starving.

In fact, Mexico has some very rich individuals, including at least 10
billionaires, among them Carlos Slim, the worlds second-wealthiest
man.

And Mexico also has vast economic potential. Its just been
spectacularly mismanaged.

A prime example: petroleum. If managed properly, Mexicos oil could
produce great wealth for the country, and could serve as the basis of
myriad manufacturing industries.

Somehow, though, it just hasnt worked out that way.

Mexico has one of the worlds most closed petroleum markets, controlled
by the state oil company PEMEX (Petróleos Mexicanos), which is protected
from all competition. PEMEX enjoys a legal monopoly on the exploration,
processing and sale of petroleum

The peculiar privileged status of PEMEX in Mexico affords it immunity from
criticism. Mexicans are taught that PEMEX represents Mexican sovereignty
and the property of the nation, even Mexican identity itself. Every March
18th, the Petroleum Expropriation of 1938, when the oil was nationalized
and foreign oil companies were kicked out, is celebrated in the schools.

Thus to talk about privatization, or even private investment in PEMEX,
invites hysterical denunciations for €œselling out" the fatherland. PEMEX
is linked in the minds of some Mexicans with their reflexive
anti-Americanism and the paranoid fear that Americans are going to steal
Mexicos oil.

In 2003, as reported in a previous VDARE.COM article, Republicans in the
House International Relations Committee voted to link any "migratory
accord" with Mexico with the opening of PEMEX to American investment. The
proposal stated that Mexican petroleum reform could "fuel future economic
growth, which can help curb illegal migration to the United States." [My
emphasis]

Reaction in Mexico was swift and harsh. President Fox rejected the
proposal, affirming that PEMEX is "part of our history". Foreign minister
Derbez even claimed that migration is a bilateral issue€”but oil is a
domestic Mexican issue! (Oh, you thought U.S. immigration policy was a
domestic American issue? Mexicans dont agree).

So how is PEMEX doing now, 70 years after the Great Petroleum
Expropriation?

Oil prices are up, which ought to be good for the company. In fact, on
April 28th, the price for Mexican crude reached a record high.

Nevertheless, PEMEX finds itself in dire straits. Its biggest petroleum
source, the Cantarell Field in the Gulf of Mexico, has peaked and is in
decline.

Theres probably lots more oil out there in the Gulf. But PEMEX lacks
the expertise, the financing, and the equipment to find it. Only about 20%
of Mexican territory has been properly surveyed to find oil.

Heres one analysis of PEMEX inability to drill in deep waters

"PEMEX doesnt currently have the technical, organizational,
administrative capacity, nor the highly qualified personnel, to begin
exploratory drilling in ultra-deep waters€¦..Its deficiencies would be
even greater to the extent that drilling activities were successful, given
that the development of fields requires even greater human and technical
resources." [Ultraprofundas, by Sergio Sarmiento, El Siglo de Torreon,
March 24th, 2008, my translation. ]

So who said that? Some capitalistic Big Oil magnate trying to steal
Mexican oil?

No, thats a quote from Adrian Lajous, former director general of PEMEX.
He ought to know.

Other problems include the companys massive debt, its thousands of
miles of pipeline constantly being tapped by oil thieves, and its history
of environmental disasters and dangers to the public.

PEMEX holds the dubious honor of having the largest accidental oil spill
in history, in 1979, when an exploratory well exploded in the Gulf of
Mexico. In 1984, explosions at a PEMEX storage facility in Mexico City
killed 500 people. In 1992, explosions in Guadalajara killed over 200
people.

PEMEX service stations, with their familiar green signs, dispense gasoline
nationwide to captive Mexican consumers. The stations are actually operated
by private contractors who obtain concessions to operate them.

But many PEMEX stations are notorious for dispensing petrol by utilizing
some special techniques. One example is what customers refer to as
chiquilitros (little liters). That means if you purchase 10 liters, you
might really be getting 9 pumped into your tank. Or the fuel may be
diluted with water, typically in a 3 to 1 gasoline to water ratio.

PEMEX refuses to take responsibility for such shenanigans, blaming the
concessions themselves!

Of course, some PEMEX stations have better reputations than others. So
Mexicans go to the more trustworthy establishments, hoping to get the full
amount. Where I live, I know where the more reputable stations are
located.

PEMEX has many problems. But the basic problem is that it serves as a
giant piggy bank for the Mexican government. Most of the companys
profits are siphoned right into the Mexican government budget. Mexicans
are "addicted to petroleum"€”thats how Agustin Carstens, Mexicos
Finance Minister, put it.

For the Mexican government, depending on petroleum is just the easy way
out, rather than trying to tackle the high tax evasion rate and problems
with the taxation system. There was a fiscal reform last year but it
didnt go very far. Its just much easier to utilize the countrys
oil monopoly as a cash cow. So oil revenues make up close to 40% of the
Mexican government budget. (Alarming thought: whats going to happen if
oil prices drop?)

For PEMEX, being used as the governments golden goose means the company
cant be run as a real oil company. There is not enough money left for
oil exploration, exploitation and processing. Plus, PEMEXs leaders are
not chosen for their expertise in the petroleum industry, but their
political connections.

Then there is the acute lack of refineries. The United States has about
150 operable oil refineries. Mexico, with about a third of U.S. production
has a whopping total of 6 (aging) oil refineries!

Mexican law prohibits PEMEX from partnering with foreign companies within
Mexico€”but not outside Mexico. So Mexican crude is exported to Houston,
Texas, where it is refined (in partnership with Shell), then imported back
to Mexico.

Currently, about 40% of the gas at the pump in those PEMEX stations is
imported. Mexico is a net importer of natural gas from the United States.

Ironically, its oil monopoly makes Mexico more dependent€”not less€”on
the United States. But dont bring up privatization, thats taboo!

Im not a big fan of state oil companies. I think the American oil
industry has done quite well with private ownership of oil. (Full
disclosure€”my brother works in Oklahoma as a roughneck, and he enjoys
it, and my family has mineral rights on the family farm).

Still, we cant expect every country in the world to adopt our system.
As a matter of fact, about 90% of the worlds oil is managed by some
sort of state oil company. But most of them do it more sensibly than
Mexico.

Just look at some of Mexicos fellow Latin American countries. Venezuela
has a state oil company, PDVSA (Petróleos de Venezuela, S.A.) which allows
partnerships with foreign oil companies.

Even Cuba (!) allows private investment in oil exploration. Fidel signed a
contract with Canadas Sherritt International to explore Cubas
offshore fields and split the profits. Such an arrangement would be
legally impossible in Mexico. [Jaque Mate| Invertir en Pemex, By Sergio
Sarmiento, El Siglo De Torreon, February 8, 2007.]

But maybe the best example, and most relevant in contrast with Mexico, is
Brazil and its Petrobras. Like PEMEX, it is a state oil company. But
Petrobras is no longer a monopoly, although the Brazilian government
maintains majority ownership. Petrobras allows private investment and
sells shares of stock on the New York Stock Exchange. Petrobras has become
a leader in offshore drilling technology.

The recently-discovered Carioca Field, off Brazils coast, may be the
worlds third-largest. Petrobras is well-situated to exploit it. In
contrast, if Mexico found such a field, it would currently be unable to
exploit€”and even Petrobras, despite being a fellow government-owned
company, would not be able to help.

Heres a further irony. Despite all the paranoia about Americans
stealing Mexicos oil, thanks to Mexicos Bizarro World petroleum law,
the country is at risk of losing its oil on the U.S.-Mexican maritime
border

This is the maritime borderline that extends outward, into the Gulf of
Mexico, from the Texas-Mexico international boundary. In 2000, the U.S.
and Mexico made an agreement to hold off exploration on that border area
until 2010. So in two more years, if the U.S. allows drilling there and
Mexico still cant drill there, depending on the geological formation,
some of that oil may be sucked over to the American side and lost to
Mexico permanently.

All because Mexico wont allow foreign investment!

That possibility provoked Universal, Mexicos paper of record, to opine
in an editorial that

"What PEMEX needs is money. If its impossible to stop taking a great
part of its profits €“ to fill whats lacking in the coffers €“ then
it is necessary to permit its association with private capital without
ceding the national ownership of the petroleum, as the rest of the world
does." [¿Más Petróleo Nuestro a EU?, El Universal Feb. 18th, 2008]

Actually, since about 1980, PEMEX has been forced to bring in private
companies, even foreign ones, to carry out certain operations, under
arrangements known as multiple service contracts. In such a contract, the
company is paid a set fee for the service, but does not share in the
profits if it helps locate a gusher.

But that also means that, if a foreign company under such a contract fails
to find oil, PEMEX has to take all the loss. If the private company were to
receive part of the profits, it could shoulder some of the risk.

If PEMEX were to liberalize its petroleum law, to allow partnership with
private companies, it could attract more investment and arrive at mutually
profitable arrangements. After all, the private companies want to find oil
too, and such arrangements would provide even more incentive to do so.

But to hidebound Mexican socialists, profit is a dirty word.

And, I get the impression that most Mexicans dont know much about the
petroleum business. Schoolchildren are taught about how great the Oil
Expropriation was, and how the oil is the "property of the nation", but
not much about how the oil business really works.

The way oil is discussed, youd get the impression that Mexicos oil
is just sitting there in a big tank with a spigot on it, where it must be
protected from theft by nefarious private enterprisers who constantly want
to steal it.

In reality the petroleum industry is a complicated one, requiring
specialized equipment, skilled geologists, engineers and other
specialists, and workers that know what theyre doing. Even then you
might not strike oil.

And it requires financing. British Petroleum, for example, is drilling
over 10,000 feet in the Gulf of Mexico in U.S. waters. For every
deep-water discovery, it costs BP more than a billion dollars. Thats
almost as large as PEMEXs 2007 net losses.

Of course, there are plenty of influential Mexicans who recognize the
problems with PEMEX. Hopefully they can help solve these problems. But it
involves struggling with this Mexican psychological aversion to allowing
private money into PEMEX.

President Felipe Calderon delivered a PEMEX reform to the Mexican Congress
on April 8th. Its really reform "lite". It does propose to grant more
autonomy to PEMEX, to sell PEMEX bonds to citizens, and to try to run it a
little more like an oil company. But the reform would not allow private
companies to partner with PEMEX in Gulf oil exploration; they could only
be paid a bonus if their work is considered successful.

But despite the fact that the proposal is not a privatization, and really
doesnt go very far, it was enough to provoke plenty of opposition,
including thousands of street protestors and a two-week takeover of the
podiums in the Mexican Congress legislative chambers.

The principal opponent to Calderons proposal is Andres Manuel Lopez
Obrador (known as AMLO), who barely lost the 2006 presidential election
and who has never officially recognized the Calderon Administration. AMLO
opposes any form of private money, foreign or domestic, going to PEMEX. He
threatens to unleash more mass street demonstrations to support his point
of view.

Nevertheless, a deal has been struck with the major political parties to
conduct a formal debate, from May to July, over the issues of PEMEX
reform.

Who knows, after all the wrangling in the Mexican Congress, what kind of
reform will be carried out? It might possibly be a step in the right
direction. But it may be too little, too late.

Personally, Id like to see Mexico reform its petroleum industry and
increase its output. If managed properly (thats the big "IF") it would
be advantageous to both Mexico and the U.S.

Id rather the U.S. buy more oil from Mexico and less from the Middle
East.

But, if the Mexican government is unable to reform PEMEX, that might not
be possible.

What can we do about it? Directly, nothing. After all, any American
involvement or pressure would be counter-productive, bringing forth howls
of hysteria about gringos attempting to steal Mexican oil.

Mexico is very defensive about its oil. Its almost as if Mexicans would
rather limp along with an inefficient system than allow foreigners to make
money off of it.

Well, OK, its their country. Let them run PEMEX into the ground if they
want.

But the U.S. should be just as protective of its own sovereignty€”in
relation to immigration and naturalization law.

And we shouldnt be conned into thinking that Mexico is a poor country
that has no resources. Mexico has many resources. Its leaders have just
chosen to use them badly.

But what if we closed the border, thus eliminating the emigration safety
valve upon which Mexicos elite depends? Maybe then Mexicos leaders
would pull out all the stops to reform their petroleum industry.

There is no alternative. Its worth a try."

http://vdare.com/awall/080501_memo.htm

American citizen Allan Wall ( email him) resides in Mexico, with a legal
permit issued him by the Mexican government. Allan recently returned from
a tour of duty in Iraq with the Texas Army National Guard. His VDARE.COM
articles are archived here; his FRONTPAGEMAG.COM articles are archived
here his "Dispatches from Iraq" are archived here his website is here.

--
Message posted using http://www.talkaboutaudio.com/group/rec.audio.opinion/
More information at http://www.talkaboutaudio.com/faq.html

[[email protected]]

On May 5, 9:24 pm, "BretLudwig" wrote:
Memo From Mexico, By Allan Wall
PEMEX Fritters Away Mexico’s Oil Wealth. Closing The Borders Would Help

"Mexican poverty is constantly used to browbeat Americans into accepting

mass immigration (legal and illegal) from Mexico.

After all, how could you refuse poor Mexicans from entering the United
States—they are from a very poor country, right? They’ll starve to
death otherwise, right?

Well, maybe Mexico is poor in comparison to the United States. But by
world standards it’s certainly not among the poorest. And its people
aren’t starving.

In fact, Mexico has some very rich individuals, including at least 10
billionaires, among them Carlos Slim, the world’s second-wealthiest
man.

And Mexico also has vast economic potential. It’s just been
spectacularly mismanaged.

A prime example: petroleum. If managed properly, Mexico’s oil could
produce great wealth for the country, and could serve as the basis of
myriad manufacturing industries.

Somehow, though, it just hasn’t worked out that way.

Mexico has one of the world’s most closed petroleum markets, controlled
by the state oil company PEMEX (Petróleos Mexicanos), which is protected
from all competition. PEMEX enjoys a legal monopoly on the exploration,
processing and sale of petroleum

The peculiar privileged status of PEMEX in Mexico affords it immunity from
criticism. Mexicans are taught that PEMEX represents Mexican sovereignty
and the property of the nation, even Mexican identity itself. Every March
18th, the Petroleum Expropriation of 1938, when the oil was nationalized
and foreign oil companies were kicked out, is celebrated in the schools.

Thus to talk about privatization, or even private investment in PEMEX,
invites hysterical denunciations for “selling out" the fatherland. PEMEX
is linked in the minds of some Mexicans with their reflexive
anti-Americanism and the paranoid fear that Americans are going to steal
Mexico’s oil.

In 2003, as reported in a previous VDARE.COM article, Republicans in the
House International Relations Committee voted to link any "migratory
accord" with Mexico with the opening of PEMEX to American investment. The
proposal stated that Mexican petroleum reform could "fuel future economic
growth, which can help curb illegal migration to the United States." [My
emphasis]

Reaction in Mexico was swift and harsh. President Fox rejected the
proposal, affirming that PEMEX is "part of our history". Foreign minister
Derbez even claimed that migration is a bilateral issue—but oil is a
domestic Mexican issue! (Oh, you thought U.S. immigration policy was a
domestic American issue? Mexicans don’t agree).

So how is PEMEX doing now, 70 years after the Great Petroleum
Expropriation?

Oil prices are up, which ought to be good for the company. In fact, on
April 28th, the price for Mexican crude reached a record high.

Nevertheless, PEMEX finds itself in dire straits. Its biggest petroleum
source, the Cantarell Field in the Gulf of Mexico, has peaked and is in
decline.

There’s probably lots more oil out there in the Gulf. But PEMEX lacks
the expertise, the financing, and the equipment to find it. Only about 20%
of Mexican territory has been properly surveyed to find oil.

Here’s one analysis of PEMEX’ inability to drill in deep waters

"PEMEX doesn’t currently have the technical, organizational,
administrative capacity, nor the highly qualified personnel, to begin
exploratory drilling in ultra-deep waters…..Its deficiencies would be
even greater to the extent that drilling activities were successful, given
that the development of fields requires even greater human and technical
resources." [Ultraprofundas, by Sergio Sarmiento, El Siglo de Torreon,
March 24th, 2008, my translation. ]

So who said that? Some capitalistic Big Oil magnate trying to steal
Mexican oil?

No, that’s a quote from Adrian Lajous, former director general of PEMEX.
He ought to know.

Other problems include the company’s massive debt, its thousands of
miles of pipeline constantly being tapped by oil thieves, and its history
of environmental disasters and dangers to the public.

PEMEX holds the dubious honor of having the largest accidental oil spill
in history, in 1979, when an exploratory well exploded in the Gulf of
Mexico. In 1984, explosions at a PEMEX storage facility in Mexico City
killed 500 people. In 1992, explosions in Guadalajara killed over 200
people.

PEMEX service stations, with their familiar green signs, dispense gasoline
nationwide to captive Mexican consumers. The stations are actually operated
by private contractors who obtain concessions to operate them.

But many PEMEX stations are notorious for dispensing petrol by utilizing
some special techniques. One example is what customers refer to as
chiquilitros (little liters). That means if you purchase 10 liters, you
might really be getting 9 pumped into your tank. Or the fuel may be
diluted with water, typically in a 3 to 1 gasoline to water ratio.

Water and gasoline do not mix.

Gravity will separate them. Putting water in gasoline storage tanks
will result only in the tanks pumping out pure gasoline until the
gasoline runs out, then pure water.

Unless you replumb them to pump from the bottom in which case the
reverse is true.