12-02-03 The CEO of Mexico's state oil company Pemex, Raul Munoz Leos, appeared before a congressional committee to urge lawmakers to approve new multiple service contracts (MSCs) and tackle natural gas shortages. "The imbalance between gas production and demand has reached critical levels. What was a forecast is now a reality," Munoz said.
The MSCs are needed to boost private sector investment in the hydrocarbons sector and reverse dwindling levels of natural gas production, Munoz said. Natural gas production in the internal market is forecast at around 4 bn cfpd in 2003, well short of expected demand of 5.2 bn cfpd, which is some 23 % higher than in 2002, Munoz said, adding that the contracts would halve natural gas imports by 2006 and save $ 300-800 mm a year.

Even though Mexico is expected to nearly double natural gas imports in 2003 to 1.1 bn cfpd from 592 mm cfpd last year, this would still leave a shortfall of 100 mm cfpd, causing shortages for metal-producers, gas distributors, petrochemical and power plants, Munoz warned.
Pemex expects its own natural gas consumption to grow 12 % in 2003 compared to around 2.1 bn cfpd last year. It will reduce gas supplies to state power company CFE to 1.7 bn cfpd, even though CFE's demand is expected to be around 1.9 bn cfpd.

Munoz also warned that if appropriate measures are not taken to lift investments levels, Pemex risks undercapitalization due to strong growth in liabilities and higher production costs.
And he repeated his opinion that Pemex is hampered by the current fiscal regime, which obliges the company to hand over almost 70 % of its revenues to the public treasury. Many legislators have voiced opposition to the MSCs on the grounds that they contravene Mexico's long-standing constitutional prohibition on foreign ownership of hydrocarbon resources.
Munoz told lawmakers that the contracts were simply a means of grouping several services into a single contract and that Pemex would be responsible for overseeing the contractors' activities and would retain the right to all hydrocarbons produced.

Pemex plans to publish bidding rules in the second half of February, and, as long as congress gives its seal of approval, will call for bids in August, Pemex's top lawyer Cesar Nava told. Pemex would award the first contracts in September for the winners to start work in January 2004, he added.
Mexico has banned international oil companies from operating in the world's forth-largest oil industry since 1938, when former President Lazaro Cardenas confiscated the hydrocarbon assets of British and North American companies. Mexico is the only country among the world's top five crude oil producers where the world's major international oil companies do not operate.