Oil-Rich Mexico Output Declines

The State oil company of Mexico, Pemex is in trouble, reports the New York Times. Its production and proven reserves are falling, and it has no money to reverse the slide.

This is important for the US because Mexico is the second-largest supplier of imported oil to the United States, after Canada. If the company continues on its current course, Mexico may one day have trouble just keeping up with rising demand at home, let along exporting to the hungry US.
The major reason that Pemex’s prospects are so poor, energy experts agree, is government interference. The Mexican government, which expropriated the oil industry in 1938, depends on Pemex to finance its budget. Last year, sales at Pemex reached $97 billion. But $79 billion of that went to the government, accounting for 40 percent of the federal budget.

Pemex is also hamstrung by government bureaucracy— Mexico’s president and Congress must approve the company’s budget, its output, investments and exports each year. Pemex is closed to any outside investment, shutting it off from private capital and expertise. Because it has no competition at home, Pemex has not reinvested enough for
decades.

As part of his Latin American trip, President Bush is scheduled to visit Mexico Monday and Tuesday, and oil is likely to be on the agenda. Bush has already muted that Mexico, should consider private capital to expand Pemex production.  Isn’t that what the Americans offered the Iraqis? Soon they might even be talking about Production Sharing Agreements