Mexico Joins America’s Oil Boom
By Chriss Street
The United States stands to be a huge economic winner in the
modernization of Mexico’s oil and gas industry.
Mexico, which in 1938 was the first country in the world to
nationalize its oil and gas sector, formally began the process to amend its
constitution on August 12th to end the state-owned-monopoly for
energy exploration, development and distribution, known as Pemex.
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Over
the last 10 years Mexican oil and gas production fell by 30%, while U.S. and
Canadian production leaped by 50%, due to new technology and capital
investment. Forming joint-ventures with U.S. and foreign oil companies
will allow Mexico’s to stabilize its production and offers huge opportunities
for growth through deep-water exploration and fracking. Modernization of
the oil industry heralds a coming economic boom for Mexico and North American
energy security for the United States.
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Commercial production of crude oil in Mexico began in
1901 and Mexico began exporting oil after substantial investments by U.S. oil
companies in 1911. Following the bloody Mexican Revolution, the new
government passed the Constitution of 1917 that
granted the Mexican government under Article 27 the permanent and complete
rights to all subsoil resources in the country. In 1925, the Mexican
government decreed that foreign oil companies must register their titles
and limited their concessions to fifty years. Thirteen years later, the
government expropriated all oil rights and assets.
This nationalization led to a boycott of Mexican oil by the
U.S. and the U.K. Mexico responded by exporting oil to fascist regimes in Germany and Spain, until
WWII began and exports ceased in 1940. Mexico’s oil output expanded at an
average annual rate of 6%, but in 1957 Mexico became a net petroleum importer
after domestic demand exceeded domestic production. In 2007, Mexico was
the sixth largest producer of oil, but with falling production Mexico has
dropped to the 14th largest producer. This is despite
quadrupling annual investment from $5 billion to $20 billion during the period.
Pemex has always been known for high levels of
corruption. The state-owned-enterprise officially has
approximately 150,000 employees. But tens of thousands of these workers
are “aviadores” (aviators), this is the Mexican nickname corrupt ghost workers
who are paid each week, but never show up to work. To get a job at Pemex,
Mexicans have been required to pay cash bribes in U.S. dollars. The cost
for a Pemex manual labor union job through the Sindicato de Trabajadores
Petroleros de la República Mexicana as a gas station attendant is $6,000.
The cost for an administrative management job through the Unión Nacional de
Técnicos y Profesionistas Petroleros is $33,000. Pemex also provides the
unions $20 million per year to pay for expenses for celebrations such as the
anniversary of petroleum expropriation and May parades, economic support for
the general executive committee, travel, promotion of cultural and sporting
activities, and contract costs associated with the annual revisions to the
national collective bargaining agreements.
According to Agencia EFE, a Spanish-language news agency, a
Pemex Deputy Comptroller stated that between 2006 and 2010, within Pemex’s
largest unit, Pemex Exploración y Producción, there were 153 cases of fraud
detected. The corruption reportedly includes: inflating multimillion dollar
contracts, giving contracts in exchange for favors, and giving contracts
without a license to friends, giving contracts to unqualified firms and helping
criminal groups to steal fuel.
President Pena Nieto and his Institutional Revolutionary
Party (PRI) are acutely aware of that falling oil production and reserve
replacement will accelerate to the downside if Article 27 is not amended, in
order to encourage joint-venture foreign investment and introduction of
proprietary American technologies. Mexico intends to continue to own all
subsoil minerals, but foreign firms will now be allowed to form profit-sharing
contracts. Pemex lacks the technology and expertise to expand production,
such as in the deep waters of the Gulf of Mexico and the shale gas plays in the
northeast of the country. To provide political cover for the reform,
joint-ventures will require 30% Mexican content for equipment purchases to
stimulate Mexican manufacturing.
President Pena Nieto and the PRI have partnered with the
pro-business National Action Party (PAN) to gain the 2/3 majority in parliament
that is necessary to amend the Mexican constitution. The PAN tried
unsuccessfully for 12 years to change Article 27 to eliminate monopolies in
oil, gas and electricity. With few major disagreements between the PAN
and the PRI on the proposal, and with the major pillars of the ruling party
apparently in favor of the reforms, Pena Nieto’s efforts now are more of
a public relations campaign than anything else.
The United States stands to be a huge economic winner in the
modernization of Mexico’s oil and gas industry. American companies
uniquely have the capital and the technology to grow Mexican production and
every barrel of oil produced in North America reduces the United States’ reliance
on Middle East oil.
CHRISS STREET & PAUL PRESTON
Present On the Republic Radio Network in the USA and Canada
“The Agenda 21 Radio Talk Show”
Streaming Live Monday through Friday at 7-10 PM
http://www.republicbroadcasting.org/shoutcast/shoutcast.html
Present On the Republic Radio Network in the USA and Canada
“The Agenda 21 Radio Talk Show”
Streaming Live Monday through Friday at 7-10 PM
http://www.republicbroadcasting.org/shoutcast/shoutcast.html
Visit Our Blogs: www.chrissstreetandcompany.com
& www.agenda21radio.com
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