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Pemex: What’s There to Celebrate?


Photo: Oil Price

By THÉRÈSE MARGOLIS    

Mexican President Andrés Manuel López Obrador (AMLO) and his team of “Fourth Transformation” zealots may be celebrating the anniversary of the 1938 expropriation of the country’s oil interests today, Monday, May 18, but the truth is that there really is not all that much to extol about the now-state-run oil giant Petróleos Mexicanos (Pemex).

Yes, at age 81, Pemex is as moribund as most human octogenarians, and it is sinking in debt, with outstanding financial obligations of more than $106 billion, making it the world’s most-indebted oil company.

Pemex is also suffering from a drop in production, a decline in untapped reserves and a downturn in international oil prices.

The company’s own figures show that over the last 73 months, through to January 2019, in 60 of those months, Pemex’s balance sheet was in the red.

The country’s antiquated oil refineries can only produce about 30 percent of national demand, which means Mexico is a net importer of gasoline, and even the promise of the new Dos Bocas refinery, due to open in three years, is no guarantee that the country can become self-sufficient in fuel production.

And while AMLO has made a great show of closing off oil ducts to stop fuel theft (leaving millions of Mexican drivers without gasoline in December and January) and playing shell games with figures to create an illusion that a fresh influx of investment capital to revitalize a rapidly crumbling Pemex, the Big Three international rating agencies (Fitch, Moody’s and Standard and Poor’s), the International Monetary Fund (IMF), the Organization for Economic Cooperation and Development (OECD) and even the Bank of Mexico (Banxico) have all essentially said that Petróleos Mexicanos is the equivalent of a massive financial black hole that is dragging the entire national economy into collapse.

These experts have said that it would take an annual input of between $13 billion and $18 billion a year just to get Mexico’s oil production back at its previous levels of 940 million barrels a day.

That figure is at least two and a half times more than the funds proposed the president’s questionable five-year, 107-billion-peso bailout plan (of which, by the way, only 25 billion pesos are direct revenues, the rest being “compensated” for through pension cuts, fiscal relief and alleged reduced huachicoleo, or fuel theft).

No surprise, outside financial analysts have been extremely underwhelmed with the president’s bailout scheme.

Within hours of its announcement, JP Morgan, BBVA Bancomer and Citi Banks proclaimed it “insufficient and deceptive,” warning that it will take more than heroic financial measures and grandiose ceremonies to make Pemex profitable.

The fact of the matter is that one of the reasons that Mexico’s crude oil production has dropped off so dramatically over the past decade is that output from mature fields has tapered off.

In other words, the cow has run dry and is no longer producing milk. The goose with the golden eggs has stopped laying them.

Despite a landmark Energy Reform by AMLO’s predecessor, Enrique Peña Nieto, in 2013, which was intended to free up the Mexican carbohydrate industry by allowing foreign investment, there have been no major new startups to compensate for that production slowdown, which has continued into 2019.

As a result, Pemex, which is the key source of revenues for government coffers, has become a financial albatross with dwindling outputs and increasing debt.

Yes, AMLO and his team are out today celebrating the glorious 81-year history of the state-owned oil mammoth.

But, sadly, that mammoth is an antiquated mastodon on its last legs that is threatening, with the help of AMLO, to bring down Mexico’s entire national economy.

 

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Categories: energy, Mexican politics, Mexico, Opinion, PoliticsTags: , , , , , , , , , , , , , , , , , , , ,

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