Calderon proposes opening Mexico's oil industry

Dec. 4, 2006
Mexico's new President Felipe Calderon proposes opening the country's oil industry to foreign oil corporations to help increase crude oil exports.

Peter Howard Wertheim
OGJ Correspondent

RIO DE JANEIRO, Dec. 4 -- Mexico's new President Felipe Calderon proposes opening the country's oil industry to foreign oil corporations to help increase crude oil exports.

Calderon, a member of the National Action Party (PAN), said foreign companies, which currently are allowed only as contractors providing oil field services such as drilling, seismic work, and infrastructure construction, should be allowed to enter into joint production agreements with Mexico's state-owned Petroleos Mexicanos.

"Pemex should be given the freedom to buy the technology or put together the contracts necessary to be able to increase reserves and produce oil," said Calderon, who was sworn in Dec. 1.

Oil accounts for 40% of Mexico's annual revenues, so the decline of oil output could leave the country with a nightmarish budget crisis, say analysts.

Yet Calderon, who realizes he would have to confront private monopolies and powerful unions, has repeatedly denied that he would privatize Pemex, as former President Vicente Fox, also of the PAN party, tried to do after taking office in December 2000.

Such a step, which would require amending the Mexican Constitution, has been repeatedly defeated in Congress by lawmakers of the Democratic Revolution (PRD) and the centrist Institutional Revolutionary Party (PRI).

Oil production declines
The nation's largest producing area, the Cantarell offshore oil field, is facing a decline similar to other fields, but on a much larger scale. Its production of 2.1 million b/d of oil is expected to fall to between 1.4 million and 520,000 b/d by 2008, according to government estimates.

If the worst-case projections materialize, Mexico's oil exports to the US could decline by as much as 1 million b/d.

Pemex predicts that the declines will be offset by new wells coming online in deepwater Gulf of Mexico and in Chicontepec field in Veracruz state. However, many experts say both areas would require at least a decade of exploration and development before significant production begins.