Energy reforms see Mexico relinquish total control of its oil reserves
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Energy reforms see Mexico relinquish total control of its oil reserves

After 76 years of state control, Mexico’s oil and gas sector was opened up to private investors when the government signed historic reforms into law last week.

Under the new law, state-run oil monopoly Petróleos Mexicanos (Pemex) will retain the rights to 83 percent of the nation’s proven oil reserves, but only 21 percent of any reserves that have not yet been discovered.

The latter figure is less than Pemex had asked for but it will please multinational companies like Exxon Mobil, BP, Shell and Lukoil – all of whom are expected to bid for contracts in the auction scheduled for June 2015.

Pemex will retain control of reserves equivalent to around 20.6 billion barrels. The rationale behind auctioning off 79 percent of Mexico’s unproven reserves is that exploiting these may require a degree of investment and exploration that is beyond Pemex’s capabilities.

Reforms divide opinion

Since assuming office in December 2012, the administration of President Enrique Peña Nieto has sought to modernize Mexico’s economy by overhauling key sectors such as education, telecommunications and energy. As a result of the controversial energy reforms, Peña Nieto said Mexico can expect to receive about $50 billion in investment over the next three years.

Many Mexicans have opposed the reforms because they feel that opening up the oil sector and auctioning off concessions will allow foreign corporations to profit at their expense.

Ever since President Lázaro Cárdenas nationalized Mexico’s oil industry and founded Pemex in 1938, the state-run company has been a symbol of national pride and the source of about one third of the federal government’s annual budget.

The government had to pass a constitutional amendment allowing private firms to participate in the oil industry last year, before agreeing on secondary laws to define the terms of their participation.

Peña Nieto has always maintained that Pemex will remain under state control, and any suggestion that it be privatized has been met with fierce resistance from Mexico’s left. Yet few would deny the need for some degree of change, given that Pemex has long been dogged by accusations of corruption, inefficiency and mismanagement.

Pemex’s mounting problems

Having suffered from decades of underinvestment, Pemex lacks the capacity to refine much of the crude oil it produces. This means Mexico loses millions every year by exporting crude oil to the United States and then importing nearly half of its gasoline at higher prices.

Although Pemex is among the world’s ten biggest crude oil producers, production has dropped to just 2.5 million barrels a day and is approaching the lowest levels seen since 1990. As a result of the reforms, the government hopes that by 2025 production will have recovered to the highs of 2004, when it peaked at 3.5 million barrels a day.

Pemex must also improve its woeful safety record, as fatal workplace accidents are currently an all-too-common occurrence. Just last week, three Pemex workers were killed and nine were injured in an explosion at a refinery in Ciudad Tampero in northern Tamaulipas state.

The worst incidents in recent years included a blast that killed 30 workers near the city of Reynosa in Tamaulipas in September 2012 and an explosion at Pemex’s Mexico City headquarters that left another 33 people dead in January 2013.