Mexico is still the world’s third largest oil producer, and half of its oil comes from the Cantarell deposit. But a looming strike over wages highlights the uncertainty at Petroleos Mexicanos, the state-owned oil monopoly known as Pemex. In recent years Mexico has earned renown as a star reformer among emerging markets, yet it is one of the few oil powers that refuses foreign help to improve efficiency or find new wells. As a result, reserves have dropped by half over the past decade. President Vicente Fox came to office with plans to open up the oil sector, but he’s run into a constitution that defines fossil fuel as state treasure, and a gusher of local opposition. Says Jose Luis Torres, a 37-year-old foreman on a Cantarell platform, “The workers think the gringos are coming to take their jobs.''
Three decades ago private companies known as the “Seven Sisters” dominated global oil markets. Their power spurred nations from Saudi Arabia to Venezuela to seize oil assets, and since the late 1970s state companies have ruled. Despite recent megamergers that created giants like ExxonMobil, the top five oil companies are national enterprises (Pemex is No. 3). Of course, most are no longer so nationalistic, and are partnering anew with private oil firms to gain expertise, capital and technology. Even Iran has found ways around constitutional restrictions on foreign involvement. Mexico is the unexpected exception.
Mexico nationalized oil earlier and more aggressively than most. Formed in 1938 from the expropriation of U.S. oil companies, Pemex became a patriotic icon. Even as Mexico opened its markets during the 1990s, energy was the one sector that the struggling left managed to protect from foreigners. School textbooks recount the expropriation as a shining national victory. But Pemex does not function as a business: its revenues fund more than a third of the national budget and a powerful oil union that fights cuts in the bloated work force. There’s little money left to invest in discovering new sources of oil. Mexico is the only oil superpower with significantly declining reserves. Even Venezuela under left-wing President Hugo Chavez has a more efficient state oil company than Mexico (producing nearly as much oil with half as many workers).
Fox, a former Coca-Cola executive, brought a CEO’s sensibility to office. He suggested that privatizating Pemex would be a good idea. He hired a former Du Pont executive, Raul Munoz Leos, to run the company. Together, they plan to reduce the work force, and are trying to get Pemex out of politics. Fox’s government is prosecuting charges that $170 million in Pemex funds were channeled into the coffers of the longtime ruling Institutional Revolutionary Party (PRI) during the 2000 presidential campaign. The move could backfire: Fox needs PRI support to get energy reforms through Congress.
Indeed, the president has already begun to backtrack on his oil plans. He now avoids the word privatization. The publicity for his energy reforms promise that “the motherland is not for sale.” His proposal to free private companies to sell electricity has been rejected by the Supreme Court as unconstitutional. A proposal to let outsiders develop Mexican natural-gas reserves is also likely to fail, which means gas-rich Mexico will have to raise gas imports just to fuel its electric plants. Rice University oil expert Amy Jaffe describes this policy as “mind-blowing.”
It’s not likely to change soon. The Bush administration is urging Fox to open up the oil industry, in part to counter possible supply disruptions in the Middle East. But the natural pressure in the Cantarell wells is falling, raising the cost of extraction. And Mexican political opposition to gringos in the oil patch is as intense as ever. If there is another Cantarell out there, it will probably take more than a fisherman to find it.
