MEXICAN OFFICIALS HINT AT THE UNMENTIONABLE

They're discussing the unmentionable south of the Rio Grande.

On Nov. 1, they traveled north to discuss it in Houston.

In a keynote speech at a Center for Business Intelligence conference, Mexican Sen. Juan Jose Rodriguez Prats said judicial and perhaps constitutional changes might be in order to give private companies enlarged involvement in energy development.

It wasn't clear that he meant oil development, which since 1938 has been the sole province of the state. But mention of constitutional change suggests that he did.

This is a sensitive subject in Mexico. Much of the population views the oil resource as national patrimony and state control of it as essential to independence.

So state-owned Petroleos Mexicanos SA runs the oil and gas industry. Reluctantly, the government has opened petrochemical manufacture and parts of the gas business to private investment. But oil belongs to the state.

There's a lot of it. The government estimates reserves at 28.3 billion bbl, second largest in the Western Hemisphere to Venezuela. Production is normally 3-3.5 million b/d, although Mexico at times limits output to help the Organization of Petroleum Exporting Countries-to which it does not belong-support the price of crude. The country also produces 1.3 tcf/year of natural gas from reserves of 30.4 tcf.

With investment from abroad and less bureaucracy in charge of things, Mexico could produce more oil and create more wealth than it does now. Nationalism wrapped up in state control of petroleum stands in the way.

While campaigning for the presidency he won in July 2000, reformist Vicente Fox promised to privatize the oil industry. He has since had to backtrack, promising instead to streamline Pemex.

But Rodriguez revived the theme in Houston, pointing out that Mexico can't fund all the projects needed to fully develop its energy resources. Like Fox, he belongs to the National Action Party.

"It's not necessary or desirable to fund every energy program from the national purse," he said (OGJ Online, Nov. 1, 2001).

In most contexts, this would be a statement of the self-evident. For Mexico, however, the economic implications are huge, the political risks great.

The country is a long way from the type of reform it needs to make in order to achieve the full economic potential of its petroleum resource.

But at least they're talking about it.

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