PETROLEOS MEXICANOS: Problems
The state-owned oil monopoly Petróleos Mexicanos announced on 25 July that it would run out of oil in seven years. This year the country's two main oil fields Cantarell and Koo-Maloob-Zaap, which produce 60% of the country's total oil, will pump out an average of 2.048m bpd, which amounts to roughly US$110m a day at current oil prices.
The problem is that by 2013, when these two fields are virtually exhausted, Pemex predicts that its total oil production will be down to 1.3m bpd. Nobody has any idea what oil prices will be in 2013, but if they are around current levels Pemex's income will be under US$45m a day. As roughly half Pemex's income is swiped by the government, the taxpayer will have to find at least another US$7bn a year, by 2013, just to maintain current levels of spending.
The problem for Pemex is that while Koo-Maloob-Zaap is compensating for the down-turn in Cantarell's production, no other major oilfields look like they are revealing themselves. The company's great hope is that there is a major undiscovered field lurking in the deep waters of the Gulf of Mexico. Thirty-five years ago oil analysts were asking more or less the same questions about how Pemex would replace it's onshore oil fields, which were in steep decline: Pemex then found Cantarell.
The run-down in oil reserves is, however, much faster than analysts expected. It is also far from clear how Pemex will tap any oilfields in the deep waters of the Gulf. Pemex has neither the technology nor the financial muscle to take the huge risks of exploring in deep waters.
Pemex's plight has major implications for the government and the country. Pemex currently supplies the government with about 35% of its total income. Without Pemex's contribution, other taxes will have to rise or the Mexican state will have to be savagely pruned.
Pemex's report to the US Securities & Exchange Commission said that the company would run out of oil in seven years' time if production remained constant and the pace of new discoveries remained at its current, disappointing, level. At the end of 2006 the company had proven reserves of 8.978bn barrels. The company's annual production is 1.33bn barrels (or 3.64m bpd of crude oil and gas equivalent)..
Pemex countered that the strict SEC requirements on what constitutes proven reserves excluded 3.92bn barrels of crude oil which is proven but not developed. Even adding this will only extend production at the current rate for a further three years.
Currently Pemex is the world's fifth-biggest oil producer. According to Oil and Gas Journal, Mexico's crude oil reserves are the eighth biggest in the world.
Scandal: Pemex endured another financial scandal when a former director (chief executive) Raúl Muñoz Leos, admitted that he had agreed to give the oil-workers' union M$1.724bn (US$160m) in 2004 to avoid a strike. Muñoz, who was brought into Pemex from Dupont, a leading petrochemical company, by President Vicente Fox to instil some private-sector discipline was dismissed at the end of 2004 after running up a record for prodigality. He insisted on travelling first-class on international flights with his wife and hiring private jets for domestic trips. He also allowed at least one wife of an executive to charge her plastic surgery to Pemex.
The oil-workers union is notorious: its leader, Carlos Romero Deschamps, a former senator for the Partido Revolucionario Institucional, was heavily involved in a scandal in 2000 in which Pemex money was shuffled, via the union, to the ill-fated presidential campaign of the PRI candidate, Francisco Labastida.
Petrobras: Brazil's state-owned oil company, Petrobras, expects to replace Pemex as the world's fifth largest oil company by 2020. Petrobras's chief, José Sérgio Gabrielli, said that the company would invest US$112bn to achieve its target.
Currently, Petrobras ranks somewhere between 10 and 15th in the world, depending on the measure chosen. Gabrielli's chosen measure is oil and gas production, He expects the company to increase its output by 50% over the next eight year. His target is to raise output from 2.3m bpd in 2006 to 3.5m bpd in 2012 and 4m bpd in 2015.
Gabrielli stressed that these plans were all for organic growth. He said that the company had no plans to take over other companies to accelerate its rise up the rankings. Gabrielli was also guarded about the prospects for the construction of a gas pipeline from Venezuela to Argentina. He said that there were still a lot of issues involving the pipeline to be resolved. The pipeline is likely to cost at least US$20bn.
Ethanol: In mid-August Brazil's filed a complaint with the World Trade Organization (WTO) against US agricultural subsidies, arguing that they subsidise US ethanol production. Brazil's WTO complaint against the US could jeopardise the Brazil-US partnership to promote ethanol as an alternative source of energy worldwide.
In March the Presidents of Brazil, Lula da Silva, and the US, George W Bush, signed a series of protocols to boost ethanol production and broaden use. The US is the largest consumer and producer of ethanol. Brazil comes second but has the resources to expand production to supply ethanol globally.
The lack of a comprehensive trade liberalisation agreement in the latest WTO round prompted the Brazilian government to attack all US agricultural subsidies, including those paid to US maize producers. US ethanol is made with maize, while ethanol produced in Brazil is made from sugar cane. Specialists agree that maize ethanol is much more expensive to produce and less energy efficient than sugar cane ethanol. Some even argue that, due to the fact that maize is used to feed livestock, maize ethanol could lead to an increase in the price of food worldwide.
Significantly, specialists claim that maize ethanol is only profitable to US producers because of subsidies they receive from their government. According to Global Subsidies Initiative (GSI), the US government provides as much as US$7.3bn in subsidies to ethanol producers.
A GSI specialist told the Brazilian newspaper O Estado de São Paulo that "a large part of these subsidies comes in the form of financial aid to maize producers". The specialist added that "by contesting US agricultural subsidies as a whole, Brazil is inevitably harming US ethanol production".