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Mexico's oil output falls, Pemex needs cash infusion

Should the national oil company allowing private investments? Critics worry about foreign control.

By Staff writer of The Christian Science Monitor / February 26, 2008

Antiprivate: Followers of leftist leader Andrés Manuel López Obrador protested Sunday against private investment in Pemex.

Alexandre Meneghini/AP

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Coatzacoalcos, Mexico

Oil output in Mexico, the third-biggest supplier to the US, is declining, and the state company Petroleos Mexicanos (Pemex) lacks the technology to explore for new reserves. For many the answer seems simple: more capital.

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But now that senators have begun debating ways to attain that capital – a top priority of President Felipe Calderón – resistance has mounted, particularly to the idea to allowing in private enterprise.

In no place is there more opposition than along the industrial corridor in this resource-rich, steamy stretch of Veracruz State. "This oil is from here, and it belongs to us," says Francisco Lopez Martinez, who inspected oil barges at Pemex for 36 years before retiring this year.

The attitudes of residents in the neighborhood Oct. 24 in Coatzacoalcos, where lines of homes are almost entirely occupied by the engineers, mechanics, and computer repair personnel employed by Pemex's plentiful plants here, underscore President Calderón's biggest conundrum: Pemex is flagging, but the country is unlikely to do anything significant about it.

It matters to the US because Mexico is a top supplier at a time when global demand is high. It matters to Mexico because Pemex funds 40 percent of the country's national budget. But as the 70th anniversary of nationalization of the industry nears (March 18), political infighting could lead to an impasse.

There are several ways to prepare Pemex to drill for the reserves of oil believed to lie deep in the Gulf of Mexico, say analysts across the political spectrum. Forming private strategic alliances is just one.

But talk of energy reform causes an almost knee-jerk reaction here, and the word "private" takes center stage, electrifying a population whose perception is that Mexico loses if foreigners are let in. On Sunday, Andrés Manuel López Obrador – Calderón's leftist opponent who lost the 2006 presidential election by a whisker and dubs himself the "legitimate" president of Mexico – led thousands in protest to proposals to open Pemex to private investment.

"We are facing a big challenge in front of us. Mexico has been a big oil producer for the last 30 years, but the lifetime of the reservoir [Cantarell] is coming to an end," says Ruben Camarillo, a member of Calderón's center-right National Action Party (PAN) and secretary of the energy commission debating the reform in the senate. "At this point in time, PEMEX does not have the [needed] technology."