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Mexico moves to open oil industry to outsiders

Aug. 13, 2013 at 2:30 AM   |   Comments

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MEXICO CITY, Aug. 13 (UPI) -- Mexico's president proposed opening the country's energy sector to "big oil" for the first time in 75 years, a move that could unleash billions in investment.

"Mexico faces a historic opportunity," Enrique Pena Nieto, flanked by Cabinet members, said Monday night in a prime-time nationally televised address from the presidential palace.

"This profound reform can lift the standards of living for all Mexicans," he said.

The Mexican economy, whose growth has averaged less than 2 percent a year since 2000, would grow faster "than at any time in decades" by allowing outside oil companies to explore and pump for oil and natural gas, he said.

The move would create jobs, lower electricity costs and revive Mexico's status as a global energy power, he said.

The proposed changes would loosen the grip of state oil monopoly Petroleos Mexicanos, or Pemex, and open Mexico's estimated 115 billion barrels in reserves and 27 billion barrels of deep sea crude to oil giants such as ExxonMobil Corp., Chevron Corp., ConocoPhillips Co., BP PLC, Royal Dutch Shell PLC and France's Total SA.

The opening would come about by changing two 75-year-old amendments to Mexico's Constitution, Pena Nieto said -- one that forbids private-sector contracts and the other that limits Mexican energy to state-run institutions.

But the proposal also confronts a core assumption of Mexican national identity -- that the country maintains total sovereignty over its energy resources.

All aspects of Mexican oil production --from extraction to refining and distribution -- have remained the legal property of the Mexican people since those amendments were instituted in 1938.

So as a result, Pena Nieto said his proposal would limit the oil giants to profit-sharing contracts but no production-sharing contracts.

This means the reserves would continue to belong to the Mexican state and Pemex would remain "100 percent" in state hands, the president said.

The oil giants had no immediate comment to Pena Nieto's proposal.

U.S. regulations generally require an oil company to have a right to produced reserves in order to book them, the Financial Times said.

Pena Nieto's measure must be approved by Mexico's General Congress.

His centrist Institutional Revolutionary Party, or PRI, controls both congressional chambers. That control, plus support from the conservative National Action Party, or PAN, which proposed its own more ambitious energy-reform proposal last month, are widely expected to be enough to secure the needed two-thirds majority in the Senate and Chamber of Deputies to change the constitution, the Times said.

The leftist Party of the Democratic Revolution, or PRD, has said it will not support the bill.

Andres Manuel Lopez Obrador, a leftist candidate in the past two presidential elections, called any privatization Pemex the "theft of the century."

He called on opponents to rally in Mexico City Sept. 8.

Pemex was created March 18, 1938, when President Lazaro Cardenas sided with striking Mexican oil workers and expropriated and nationalized oil and gas fields from U.S. and Anglo-Dutch operating companies and changed the nation's constitution.

In retaliation, many foreign governments closed their markets to Mexican oil. But in spite of the boycott, Pemex developed into one of the world's largest oil companies and helped Mexico become the world's seventh-largest oil producer.

The expropriation is celebrated nationally every March 18.

But being counted on to provide a third of government revenues has led to years of under-investment, the Times said.

Pemex output has fallen by a quarter in the past decade to under 2.6 million barrels of oil a day.

Mexico must import almost half its gasoline -- mostly from the United States. And despite having some of the world's largest shale-gas reserves, the country imports one-third of its natural gas.

Pena Nieto said Monday night his reforms would reverse that decline, boosting oil production to 3 million barrels a day by 2018 and 3.5 million by 2025. Natural gas production would jump from 5.8 billion cubic feet to 8 billion cubic feet by 2018 and 10.4 billion cubic feet by 2025, he said.

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