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Pemex aging Refineries falter – struggle modernizing

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MEXICO Aging Pemex plants falter
Mexico is struggling with modernizing its antiquated oil company

Posted on Fri, Aug. 01, 2008 By Kevin G. Hall McClatchy News Service
MINATITLAN, Mexico — Pungent smoke billows from aging petrochemical plants. Foul-smelling bluish water gathers in pools outside the walls.
Fading paint announces the creaky Lzaro Crdenas refinery in Minatitlan, Mexico, a perfect metaphor for one of the world’s biggest and most antiquated state oil companies.
Petroleos Mexicanos employs more than 147,000 people and has long operated as a state within a state, with its own hospitals, pensions and business operations.
But Pemex has historically over-invested in a bloated workforce and under-invested in new or expanded refineries and sophisticated oil exploration and production. That’s evident in the rust, smog and environmental contamination here in the state of Veracruz and farther east in the state of Tabasco.
A big reason for the state of affairs is that much of the national oil company’s earnings go directly to the Mexican treasury. Given the sorry shape of Pemex, President Felipe Caldern in April proposed a controversial energy overhaul that would give the company more control over its budget and allow private foreign firms to search for deep-water oil and to build and run refineries.
Now the nation is in knots over whether and how to modernize the 70-year-old company and find new sources of oil before Mexico’s easy-to-extract oil goes dry.
Mexico is already a net importer of gasoline — most coming from the United States — as it’s unable to refine enough oil to meet its demands. Within a decade, Mexico could compete with the United States for ever-scarcer barrels of imported oil.
Oil production in Mexico — until recently the second-largest oil exporter to the United States, after Canada — is falling precipitously because output at the Cantarell offshore oil field is declining faster than expected.
In fact, Pemex officials on Wednesday reeled in their output projections for the second time this year; they now say that Mexico will produce 2.8 million barrels per day this year, not the 3.1 million first forecast.
It falls to Carlos Morales Gil, the director of exploration and production, to turn things around. But in an interview on the 41st floor of Pemex’s towering Mexico City headquarters, he warned, half jokingly, that it could take a century to tap Mexico’s vast but unproven oil reserves.
Morales doesn’t have that much time, nor much room to maneuver. Restrictive rules govern contracting, and little of what Pemex earns can be reinvested. About 40 percent of federal spending in Mexico comes from oil earnings.
In Morales’ best guess, there are 30 billion barrels of yet-unfound oil under the deep waters in Mexico’s portion of the Gulf of Mexico. U.S. companies have drilled hundreds of test wells in the U.S. deep waters, but Pemex has drilled just four to date in Mexico’s deep gulf waters.
That’s where Mexico’s wrenching national debate over Pemex begins.
Ever since President Lzaro Crdenas nationalized the oil industry in 1938 and kicked out Standard Oil, which much later became ExxonMobil, Mexicans have equated Pemex with national sovereignty. Allowing foreigners to extract oil in Mexico, even if on behalf of Pemex, is simply anathema.
Two deep-water teams operate for Pemex now, and three more will arrive in 2010. With five operators, Mexico’s annual deep-water drill rate will grow to about 12 or 13 wells, still insufficient.
”I need to drill in deep waters about 1,500 wells in order to find these 30 billion barrels I mentioned, because not all will become producers,” Morales said. If the overhaul doesn’t progress and he must drill at current rates, “it implies it will take me 100 years to discover all the hydrocarbons that are there. Meanwhile, nobody benefits from them.”
It’s not just oil that troubles Mexico. Pemex hasn’t built a new refinery since 1979. As the country’s economy and middle class grew, the six surviving Pemex refineries couldn’t keep up with the demand for gasoline.
Mexico imported 360,700 barrels per day of gasoline in March. The energy ministry projects imports of nearly 500,000 barrels per day within seven years.
Caldern’s proposal would allow Pemex to contract with private companies to build and operate refineries. The left-leaning Party of Democratic Revolution strongly opposes this idea, warning that big U.S. multinationals such as Halliburton soon would establish influence over Pemex.

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