Editor’s note: Today’s price in Baja is $3.18 per gallon of regular. I don’t notice gasoline prices much, as they are controlled by the government monopoly, known as Pemex. $3.18 does not hit me as much of a bargain, until I noticed today’s gasbuddy.com map , showing San Diego pricing approaching $4/gallon.
Socialism: Whether it was an accident or sabotage, the deadly explosion at Mexico’s state-owned oil firm wasn’t an unusual event. The one thing Thursday’s incident at the Pemex tower should be is a spur to privatize.
Despite a much-publicized war against cartels, the real Mexico story is one of moderately good economic growth with zero net illegal emigration and a public sector financed by a budget showing a $1 billion annual surplus.
But then there’s Pemex, the supposed symbol of national sovereignty, which in reality is nothing but a millstone around Mexico’s neck holding the country back from far greater gains.
Pemex’s many costs and debts are among the reasons why that $1 billion annual surplus is not $6 billion. It’s also a big reason Mexico has $59 billion in debt. Its unionized 150,000-strong workforce is one of the least efficient, yielding an average of $506,000 of revenue per employee per year, far below the $2.865 million each employee at the top five international oil companies brings in, according to a Baker Institute study.
Less revenue, less investment, less safety. Oilmen will tell you every incident is different, and some accidents do occur at private firms of course. But the overall Pemex record speaks volumes, with comparable events at its installations in 2012, 2010, 2007, 1993 and 1984.
Even as Pemex costs the government, the government costs Pemex. Its earnings are effectively taxed at 60% to finance about a third of the government, leaving it miserably under-invested in its own production. Not surprisingly, Mexican oil production fell from 3.4 billion barrels a day in 2004 to about 2.5 billion a day in 2012.
“The government vacuums the cash flow out of this company like an Electrolux because they need to support the government and social services. Is that how a private company behaves? Of course not,” noted Garfield Miller, president of Aegis Energy Advisors, who explained to IBD that private and public oil companies have different goals.
“When you are a government institution, almost by definition an instrument of social policy, your mission becomes inescapably broader than simply maximizing value for a narrow set of constituents” — as occurs with private oil companies that answer to shareholders.
The situation is so bad in Mexico that it cannot take advantage of its vast new deepwater discoveries in the Gulf, just as the U.S.’ highly efficient private companies expand production on the U.S. side of the Gulf and the shale revolution increases production, as well.
One Comment
From my understanding….Mexico is currently sitting on a cash surplus and an almost balanced budget.
Most Americans have never heard of Carlos Slim until he loaned the New York
Times $250 million. After that it became clear to many investors around the
world what Mexicans already knew: that Mexico had been able to avoid the
worst of the U.S. economic devastation. Mexico’s resilience is to be
admired. When the U.S. Federal Reserve granted a $30 billion loan to each of
Mexico, Singapore, South Korea, and Brazil, Mexico reinvested the money in
Treasury bonds in an account in New York City.
According to oil traders, Mexico’s Pemex wisely as the price of oil shot to
$147 a barrel put in place an investment strategy that hinged on oil trading
in the range of $38-$60 a barrel. Since the beginning of 2009 Mexico has
been collecting revenues on hedged positions that give them $90-$110 per
barrel today.
Not to mention:
Mexico’s recent and under reported oil discovery in the Palaeo Channels of Chicontepec has placed it third in the world for oil reserves, right behind Canada and Saudi Arabia.
U.S.A.’s financial markets suggests.
Dow Jones: May 2004 10,200 – May 2009 8,200= 20% Loss in 5 years.
Mexican Bolsa: May 2004 10,000 – May 2009 23,000 = 130% Gain in 5 years