Politics muddle with Mexico’s gas industry

Jun 26, 2002 02:00 AM

From its Texas base, Key Energy Services loads its towering rigs and machines onto trucks and fans out across the United States to drill and maintain oil and gas wells. It has gone as far north as Canada -- but despite a long interest, it has never ventured south of the border. Broad restrictions on foreign involvement in Mexico's energy sector have long prevented US businesses from setting up shop in Mexico.
"No one can really work there," said James J. Byerlotzer, Key Energy's COO. "We can easily go across the border. Mexico really makes sense in terms of transportation costs."

The restrictions, however, could soon be lifted. A rapidly growing need for energy has prompted Petroleos Mexicanos -- Mexico's state oil monopoly known as Pemex -- to propose opening the gates to foreign natural gas companies.
In the next few months, Pemex plans to offer long-term contracts to foreign companies for services ranging from technical advice to drilling gas wells. American natural gas businesses stand ready to invest billions of dollars in Mexico's energy development.
President Vicente Fox and Pemex Director Raul Munoz Leos have been aggressive in pushing for the contracts. The investors are delighted as well.
"It's a market that is ripe for trade," said Charles R. Matthews, a Texas railroad commissioner who has spearheaded the state's effort to invest in natural gas in Mexico. "We're talking about providing energy to Mexico that will help the economy grow."

But Mexican lawmakers are less enthusiastic. Opponents in Congress are trying to prevent Pemex from issuing the contracts, claiming they would undercut Mexico's energy independence. They assert that the contracts would violate the Constitution, which prohibits private exploration and production of fuel. They call the plan a covert attempt to privatise the oil monopoly, a potent symbol of Mexico's economic sovereignty.
Horacio Guevara, a Pemex engineer who is overseeing the development of the contracts, said his team is carefully crafting the contracts to adhere to the Constitution. Driving the plan is Mexico's need to double its natural gas production, from 4.5 bn to 9 bn cfpd, by 2010 to keep up with energy demands that are increasing 8 % a year, according to Pemex officials. Pemex does not have the resources to expand that much on its own. Without the new investment, Mexico would have to rely increasingly on natural gas imports, which could cost more than $ 2 bn a year within a decade, Guevara said.

During his 2000 election campaign, Fox was accused by opponents of wanting to privatise Pemex. Although at times he seemed to indicate he believed that would be in Mexico's best interests, he also made clear it would be political suicide.
Instead, late last year he proposed "multiple-service contracts" for Pemex, which he said would bring in foreign investment without giving up sovereignty over the country's fuel supply. The debate is now heating up as Pemex prepares to release drafts of the contracts and foreign companies start lining up to bid on them.
The Mexican Senate has positioned itself to wield considerable control over the contracts' fate -- even though legal experts argue it has no jurisdiction to approve or reject them. Pemex has agreed to let senators review the contracts before putting them out to bid, a process that could take months and delay their presentation to the public - causing potential investors to lose interest.

Some senators also have threatened to mount a legal challenge if, after studying drafts of the contracts, they appear to undercut Pemex' wide-reaching authority over Mexico's energy resources. If the politicians' responses are overwhelmingly negative -- a likely possibility, energy experts say -- Pemex may be pressured into cancelling the contracts altogether.
That would be a major loss for Mexico's energy industry, proponents say, because the foreign money the contracts would attract is the country's only shot at raising the roughly $ 120 bn needed to expand its natural gas exploration and production. The contracts would be the first major opportunity for foreign investment in Mexico's energy industry since the country expropriated all foreign-owned oil companies in 1938.

Pemex already has limited short-term contracts with foreign companies, and the multiple-service contracts would simply expand them, Guevara said. So far, foreign energy companies have responded favourably to the proposed service contracts and are eagerly waiting to review drafts.
From Texas alone, nearly 100 gas company representatives travelled here in May as part of the state's largest trade delegation ever for talks about investment possibilities. "We've already got things on the board. There are opportunities there," said Michael Ward, president and CEO of Tidelands Oil & Gas Corporation in Corpus Christi, Texas.

Source: AP Online
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