American and Latin American Politics, Society, and Culture
This time in Nigeria,
As you may recall, Petrobras to pay $2.95 billion to settle U.S. corruption lawsuit earlier this year.
The Pemex-Odebrecht cases are still in the headlines.
And who could forget the UN’s oil-for-food?
It’s enough to make one suspect that government-owned and UN-connected agencies are ripe for the picking.
Monica Showalter lays out a strong case to Credit The Fracking Revolution For Mexico’s Oil Reforms That Make North America The World’s Energy Superpower
Mexico’s reversal didn’t come a moment too soon. Since 2006, its energy production has fallen sharply from underinvestment due to a bad combination of zero foreign investment, which it shut out in 1938, and the state’s habit of draining Pemex for cash to finance a third of its own budget.
The low production is evident in its oil exports to the U.S., which have fallen from nearly 2 million barrels of crude a day in 2006 to less than 1 million in 2013. As U.S. oil rigs light up the Gulf of Mexico each night, the crude-rich Mexican side stays as dark as North Korea.
Mexico’s 75 years of poor policy created a lost opportunity. Oil had become a smaller and less significant part of its economy even as the technical advances of fracking were making the U.S. and Canada the new Saudi Arabia. But it might be able to catch up, as global demand, according to ExxonMobil’s 2014 energy outlook, is forecast to grow 35% by 2040.
Now the question remains what the divided house will make of it, and, as Enrique Krauze put it, take “the road to genuine prosperity and democracy.”
UPDATE:
Mexico’s Oil and Gas Sector: Background,
Reform Efforts, and Implications for the
United States
The bill would end the restrictive laws that have kept private companies out of oil and gas production, except for service companies working under contract to Pemex. The changes allow the government to partner with private firms through different kinds of contracts, according to the final draft, sharing with them the risks of exploration activities.
Mexico will allow profit-sharing contracts, where oil firms are paid in cash; production-sharing contracts, where oil barrels are divided between the government and the companies; and licenses, through which the firms take control of oil at the well head, paying royalties and taxes to Mexico. Licenses mimic concessions, although formally concessions will continue to be forbidden.
This would end the 75-year state monopoly. Pemex’s oil production has been in steady decline.
Related:
Enrique Krauze NYT’s op-ed on Mexico’s Theology of Oil.
The leftist Partido de la Revolución Democrática (Party of the Democratic Revolution, or PRD) has pulled out of the Pact for Mexico, creating an acute crisis (link in Spanish), according to Mexican daily El País.
But how much of a crisis is it?
The Pact for Mexico, created in 2012 by then-new president Enrique Peña Nieto’s Partido Revolucionario Institucional (PRI), the PRD, and the Partido Acción Nacional (National Action Party, or PAN) ended 15 years of gridlock in the fractious congress,
allowing Mr. Peña’s administration to secure passage of wide-ranging bills on telecommunications, tax increases and education.
…
Congress is taking up the issue next week. But lawmakers from the PAN and the ruling Institutional Revolutionary Party, or PRI, are expected to rewrite the president’s bill to give private oil companies a bigger role in the state energy sector, including contracts that allow them to share oil production. The president’s August initiative called only for sharing the profits from the oil, but not the oil itself.“If they insist on an energy reform that privatizes Mexico’s oil income, the government is going to generate a situation of enormous social and political instability,” said PRD president Jesús Zambrano in an interview. “We’ll have a very hot Christmas, we’ll launch protests on all fronts.”
Together, the PAN and PRI have the two-thirds majority in Congress required to pass the proposed constitutional changes for the energy overhaul. And the president has already passed most of his major initiatives under the pact.
Mr. Peña Nieto regretted the PRD’s decision to leave the Pact for Mexico, but vowed to press on with reforms.
From the PRI’s point of view,
The ruling Institutional Revolutionary Party, or PRI, is hoping its energy reform will spur faster economic growth, and the departure of the Party of the Democratic Revolution (PRD) from the accord is likely to push the debate closer to a more business-friendly proposal backed by the center-right.
The Senate is expected to vote on the political overhaul as early as Tuesday, with a vote on the energy bill soon to follow.
I’m very skeptical:
Mexico’s Leader Tackles Historic Oil Law
President Hopes to Boost Country’s Image and Bring Billions in Investment; Move Would Loosen 75 Years of State Monopoly
Mr. Peña Nieto’s government wants to allow private firms to share the risks involved in developing increasingly complex energy reserves such as deep-water oil deposits by letting them produce oil and gas through profit-sharing deals and joint ventures with state monopoly Petróleos Mexicanos, or Pemex. Current service contracts have only attracted oil suppliers, such as Schlumberger or Halliburton, which work on behalf of Pemex and can’t drill on their own.
Click on image to enlarge:
Read their comments section; I’m not the only skeptic here.
AP has an article, Mexico’s president gathers power, pushes reform, on Enrique Peña Nieto’s recent moves,
The moves have built momentum behind what could be his most dramatic and difficult reform – modernizing and drawing foreign and private capital to the behemoth state oil company, a long sacrosanct but increasingly inefficient pillar of the Mexican economy. On Sunday, at a celebration of the 75th anniversary of the nationalization of the Mexican oil business, Pena Nieto said again that he will transform Petroleos Mexicanos. The longtime head of the Pemex union, who had been expected by many to fight any changes but has been the subject of questions about unexplained family wealth, pledged his support.
Pena Nieto says his plan will make Mexico more democratic and competitive in the world economy, and his drive for reform is fueling international confidence about Mexico. Rating company Standard and Poor’s raised the country’s long-term sovereign credit rating from “stable” to “positive” last week, citing optimism about the government’s ability to carry out structural changes. The Mexican peso is stronger against the dollar than it’s been in a year and a half.
Many, including myself, are skeptical, as Pemex has been fossilized (all puns intended) into its current form for decades. Just two days ago, Enrique Peña Nieto himself asserted,
“Pemex will not be sold nor privatized; Pemex must be transformed,” Mr. Pena Nieto said to the applause of unionized oil workers present at the ceremony at a Pemex refinery in central Mexico.
While Pemex’s crude-oil production has fallen to about 2.55 million barrels a day in 2012 from around 3.4 million barrels in 2004, the country has proven reserves of oil and gas totaling 13.87 billion barrels of crude-oil equivalent.
Adam Thomson asks, Pemex turnaround: can it be done? The problems are huge:
Enrique Peña Nieto’s party, the PRI, has symbolized entrenched power, political and economic, at the top. Whether the transformation of Pemex will involve a substantial involvement of foreign capital and technology that would make it more competitive remains to be seen.
For now, however, privatization has been ruled out.
[Post re-edited to comply with FT’s restrictions.]
