d.r. 2013, centro de investigación para el desarrollo, a.c. … · 2016-03-02 · from the 1980s...

4

México 2013

D.R. 2013, Centro de Investigación para el Desarrollo, A.C. (CIDAC)

Jaime Balmes No. 11 Edificio D, 2o. piso Col. Los Morales Polanco, 11510 México, D.F.

T. +52 (55) 5985 1010 www.cidac.org

Design and form: Magdalena Lara Monroy

You are welcome to download, copy or print this report for your personal use and can include excerpts

in your own documents, presentations, blogs, websites and teaching material, provided that the author

and CIDAC are given due recognition as information sources.

The digital report is available at:

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http://reddecompetencia.cidac.org

5

ACKNOWLEDGMENTS

ACKNOWLEDGMENTS

3 dilemmas. A diagnosis for Mexico’s energy future is the product of a joint effort of members of the Centro

de Investigación para el Desarrollo A.C. (CIDAC). Research, analysis and report editing would not have

been possible without the involvement of each single team member:

Verónica Baz

General Director of CIDAC

Ana Lilia Moreno

Coordinator of the Mexican Network on Competition and Regulation

Rafael Ch

José María Lujambio

Project Managers

Miguel Toro

Researcher and Project Coordinator

Sandra Aguilar

Humberto García

Gabriela Legorreta

Luis Serra

CIDAC Researchers

CIDAC (Centro de Investigación para el Desarrollo) is an independent, non-profit think tank that undertakes

research and proposes viable policy alternatives for the medium and long-term development of Mexico. It

aims to strengthen the Rule of Law and creating favorable conditions for Mexico’s economic and social de-

velopment as well as to enrich Mexican public opinion and providing analyses and information for societal

decision-making.

CIDAC has a board in charge of supervising the institution’s management as well as approving the general

areas of study. Nevertheless, the conclusions of these reports, along with its publications, are the sole

responsibility of CIDAC professionals.

3 DILEMAS. 3 DILEMMAS. A DIAGNOSIS FOR MEXICO’S ENERGY FUTURE

6

The international context: the American revolution of shale oil and shale gas .......................................................................................................... 09

The symbiosis between Pemex and the Mexican State ............................... 14

It’s not all about oil .................................................................................... 27

7

iNTrODuCTiON

INTrODuCTION

Shale gas revolution changed the picture of the global oil market by substantially increasing hydrocarbon

reserves in North American countries. Mexico is still unaware of the full extent of gas and shale oil that

might lie underneath its soil but it is believed that there are about 681 billion cubic feet of natural gas

and 13 billion of technically recoverable shale oil barrels1. Mexico could exploit this resource in order

to leverage its advantage on natural gas or oil but without depending on what the State might decide to

do with those assets, the export strategy of our hydrocarbons ought to be reviewed due to the change in

volume of oil production in the United States. It is dangerous to assume that Americans will keep buying

the same volume of Mexican oil and that prices will remain high, thereby compensating the drop in the

government’s oil income derived from a production that is lower than a decade ago. In this international

context, Mexico must discuss an energy reform that will guarantee its safety if it doesn’t want to stop

being an exporter and start becoming a net energy importer.

A potential energy reform in our country ought to contemplate solutions for the current symbiosis that

exists between Pemex and the Mexican government, which prevent the former from progressing, as well

as the ideological crossroad regarding the possible association of the oil company with private entities

on the hydrocarbon exploration and exploitation sectors. The first of these problems is a consequence

of favoring the oil industry as the primary engine of national development and the breadwinner of public

finances. This created a pharaonic organization, which exploits almost all of the oil and gas production

chain, due to a restrictive judicial regime and a surplus of contracted workers, derived from the everlast-

ing political alliance between government and the oil industry union.

The possible opening up of the hydrocarbon market in deep-water reservoirs and non-conventional wells

has generated a debate that frequently omits the nation’s fundamental energy problem: guaranteeing

energy access for future generations. In order to be an energy-secure country Mexico doesn’t need to

1 U.S. Energy Information Administration. Available at: http://www.eia.gov/analysis/studies/worldshalegas/

3 DILEMAS. 3 dilemmas. a diagnosis for mexico’s energy future

8

produce all of its own energy consumption, but to access sources in an efficient way, thereby allowing

a higher economic growth. To reach that goal, the country must take into account all energy markets,

including oil, of course, but also natural gas, electricity and renewable energy. The insufficient duct

infrastructure in the natural gas market has generated supply problems that derived in a crisis in 2012,

preventing a more efficient use of fuel from the industries and affecting the electricity sector, by rising

costs of production. The latter is a delicate matter in a country in which electricity rates rank among the

highest in the OECD. Finally, the transition of Mexico towards cleaner energies is fundamental if Mexico

has to comply with the agreements made regarding climate change. In order to achieve this, adequate fi-

nancial schemes should be made and structural resistance has to be overcome, as well as to strengthen

regulation already in place due to the 2008 energy reform.

9

The international context: the American revolution of shale oil and shale gas


10

ThE INTErNATIONAL CONTExT: ThE AMErICAN rEvOLuTION Of ShALE OILAND ShALE GAS

All Mexicans seem to have an opinion on their country’s oil and gas industry. Repeating those claims

have rooted the idea that Mexico is a country with plenty of oil resources to exploit and export to other

countries forever, even if Pemex isn’t enhanced at all.

However much Mexico intends to keep withdrawing itself from the hydrocarbon industry, it is fully en-

gaged in a complex market with new producers and where the exploitation of non-conventional reserves,

mainly shale oil and shale gas from the U.S., has changed the global scenario. Nowadays, our country’s

economic stability depends on acknowledging that Americans will reach energy self-sufficiency in the

coming years and will stop importing crude from our nation. This situation increases the chance that

Mexico will become a country with an energy deficit, moving from an exporter to a net energy importer

in the next 10 years.

The shale oil and shale gas discovery was made more than 30 years ago in the United States but until

a few years ago, the technological progress was not enough to fracture rocks at competitive costs.2 Hy-

draulic fracturing and horizontal drilling used in shale gas exploitation allowed finding large deposits by

revitalizing the U.S. natural gas reserves3. Additionally, shale oil will undoubtedly transform the oil market

within five years: the supply shock of this new production will have a similar impact as the enormous

Chinese demand did 15 years ago.4

With the “discovery” of non-conventional reserves in the U.S. there has been a discussion of the possibility

of Mexico having an important reservoir volume since it’s located in the same geographical region as its

northern neighbor. The U.S. Energy Department has ranked Mexico fourth in potential shale oil reserves

worldwide, with 681 billion of technically recoverable cubic feet of the aforementioned hydrocarbon, an

amount 11 times larger than the total of natural gas reserves in the country.5 Needless to say, these num-

bers have to be verified with technical studies of the highest standard, however, they are currently enabling

to ask what Mexico could leverage with these resources and how it should exploit them.

In view of the situation, can the shortage of natural gas in Mexico be approached by exploiting the non-

2 Cornell Cooperative Extension, Shale Gas: A Short History from NETL, May 25th 2011. Available at: http://cce.cornell.edu/EnergyClimateChange/NaturalGasDev/Documents/PDFs/Shale%20Gas-%20a%20short%20history%20from%20NETL.pdf

3 The development of the Bakken field, on North Dakota, as well as Eagle Ford and Permian, in Texas, have generated eight consecutive annual increases of natural gas proved reserves in the U.S. Adrián Lajous, “The future has reached us. Notes on North America’s energy shift”, Nexos magazine, number 426, Mexico, June 2013, p. 29-30

4 International Energy Agency, Supply Shock from North American Oil Rippling Through Global Markets, May 2013.

5 Secretariat of Energy, 2012-2026 Natural Gas Market Prospective, Mexico, 2012.

ThE iNTErNATiONAL CONTExT: ThE AMEriCAN rEvOLuTiON Of ShALE OiL AND ShALE GAS

11

grupo colorado

currentdeposits Prospectivedeposits

Bakken

atrim

avalon

lewisPierre niobrara

Bend

maltrata

eagle ford la casita

monterrey

Barnett Woodford

Barnet

Woodford

eagle ford

eagle ford tihonian

Pimienta tamaulipas

newalbany

devonian

marcellus

utica

mowry

gammon

niobrara

tuscaloosaHaynesville Bossier

conventional shale reservoirs? Is it worth extracting shale gas when there are low prices in the region?

What will be the environmental impact, especially regarding water use, of exploiting Mexican shale gas

reserves? Any energy policy wanting to be implemented through a reform has to contemplate concrete

actions regarding the use of these resources by evaluating its economic and environmental implications.

Main shale gas deposits in North America

Source: u.S. energy InformatIon admInIStratIon.

On a global scale, supply conditions of the oil market will radically change due to new American re-

serves. According to the International Energy Agency’s Medium Term Oil Market Report, American oil

supply will increase by 3.9 million barrels per day from its 2012 figures until 2018, which represents

two thirds of the supply’s growth from non-OPEC members in the aforementioned period6. In 2012, oil

production in the U.S. had the highest growth rate in its history, just behind Saudi Arabia and Russia7.

Likewise, it is estimated that the world’s capacity for oil production will increase in 8.4 billion barrels

per day, a way higher figure than the supply growth for the aforementioned period8. This trend comes

from 1980, in which global hydrocarbon reserves have risen by 142%, North America being the region

with the largest growth and the sector’s first position9. By 2018, these factors will reduce the amount

6 International Energy Agency. Medium-Term Oil Market Report, May 2013.

7 Adrián Lajous, op. cit., p. 29

8 Ibid.

9 British Petroleum, BP Statistical Review of World Energy, 2012.


12

of U.S. imported barrels by 2.2 million per day. Regardless that Latin American oil imports will not

present the highest decrease, the reduction of 300 thousand barrels per day imported from the afore-

mentioned region will affect the volume of Mexican oil exports. Currently, the U.S. imports 9.7% of

its oil from Mexico, which represents 35.6% of all Latin American imports, thereby, a decrease such

as the one suggested by the International Energy Agency would mean that our country would cease to

export about 100 thousand barrels per day10. If the trend of U.S. energy self-sufficiency is confirmed,

the structure of our exports might experience an important shift.11

Graph 1. Origin of u.S. oil exports (millions of barrels per day)

Source: InternatIonal energy agency.

From the 1980s onwards, Mexican economy has diversified its exports by reducing the role that oil ac-

tivities have in regards to non-oil ones: for instance, in 1980, 60% of our exports were oil-related, and

by April 2013, only 13.5% come from hydrocarbons. Nevertheless, American exports are still the most

important pillar of the energy sector and the possibility of U.S. ceasing to buy oil around 2020 forces a

thorough rethinking of our energy strategy12. Currently, from the total of oil barrels that we export, over

80% are bought by the U.S. In addition, this situation highlights the importance of a potential tax reform

10 U.S. Energy Information Administration. U.S. Total Crude Oil and Products Imports. Available at: http://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_ep00_im0_mbbl_a.htm

11 International Energy Agency, IEA World Energy Outlook, 2012.

12 According to the IEA Energy Outlook to 2035 report, it is estimated that the U.S. will increase its oil production by 51% compared to its 2008 production as a result of the shale revolution. It is projected that the country will be producing a little over 12 million bar-rels per day, reversing its historical position as a net energy importer and becoming a vigorous exporter.

Others

Asia

Europe

USA

0

10

20

30

40

50

60

70

80

90

100

2007 2008 2009 2010 20110.0

0.5

1.0

1.5

2012 2012

2.0

2.5

3.0

Others

Africa

Latin America

Middle East

20112010200920082007

Total

Training

Scholarships

2006

-10%

-5%

0%

5%

10%

15%

20%

25%

0

1,000,000,000

2004 2005 2006 2007 2008 2009 2010 2011

2,000,000,000

3,000,000,000

4,000,000,000

5,000,000,000

6,000,000,000

IMP’s budget (current pesos) Annual variation (%)

Peso

s

201220112010200920082007

104%

10%

101%

11%

86%

17%

77%

28%

72%

25%

50%

11%

Restitution rate for new 1P discoveriesTotal 1P restitution rate

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

10,000,000

0

20

40

60

80

100

120

140

160

180

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011

Drilled exploratory wells

Num

ber

of w

ells

Daily barrels per year

Annual Production

2000

3000

4000

5000

6000

7000

8000

9000

10000

11000

12000

20112010200920082007200620052004200320022001

Production (petajoules)National energy consumption (petajoules)

Peta

joul

es

Production

Incorporationof 2P Reserves

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2010-20112000-20091990-19991980-19891970-19791960-1969

Other projectsDeep-waters

201220112010200920082007

33,157

17,530

32,244

16,638

31,691

24,428

34,094

23,555

28,000

21,98716,839

14,248

2,5916,103

10,5397,263

15,606 15,627

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

0

2000

4000

6000

8000

10000

12000

14000

Natural gas demand(millions of cubic feet)

Natural gas transport capacity(millions of cubic feet)

2026

2025

2024

2023

2022

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

12.9

%

13%

13%13

.8%

13.8

%

13.5

%

14.3

%

14.5

%

15.4

%

15.8

%17.9

%

17.1

%19.7

%21.2

%23.6

%26%

0

20

40

60

80

100

120

2011 2011 2013201020092008200720062005

Annual average price of Mexicanmixed crude oil (USD/barrel)

Dol

lars

Annual average priceof natural gas (USD/MMBtu)

0

500

1000

2000

2018

2016

2014

2012

2010

2008

2006

2004

2002

2001

2017

2015

2013

2011

2009

2007

2005

2003

1500

2000

2500

3000

3500

GNL ImportsImports

0

50

100

150

200

250

300

201120102009200820072006200520042003200220012000

OECD

Mexico

U.S.

Great Britain

France

Chile

Norway

OECD

Mexico withoutsubsidies

Mexico

U.S.

Great Britain

France

Chile

Norway

0

50

100

150

200

250

300

350

201120102009200820072006200520042003200220012000

Non-oil Revenues

OilRevenues

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

20122011201020092008200720062005200420032002

Photovoltaic

Nuclear-electrical

Geo-thermal

Eolic

Coal-fired

Dual

Thermo-electrical

Combined-cycle

Hydro-electrical

0

10

20

30

40

50

60

70

80

PemexPetrobrasShellBPExxonMobilEcopetrolStatoil

Daily barrelsper occupied individual

1 2 3 4 5

6 7 8 9 10

11 12 13 14 15

16 17 18 19

ThE iNTErNATiONAL CONTExT: ThE AMEriCAN rEvOLuTiON Of ShALE OiL AND ShALE GAS

13

which will take oil away from the budget of Mexico, given that in the face of a production decrease (like

the one we now have), a lesser demand for our oil and the volatility of oil prices, it’s essential to find new

ways of public finance.

Graph 2. Destination of Mexican oil exports

Source: SecretarIat of energy, 2012-2016 Crude Oil PersPeCtive.

Others

Asia

Europe

USA

0

10

20

30

40

50

60

70

80

90

100

2007 2008 2009 2010 20110.0

0.5

1.0

1.5

2012 2012

2.0

2.5

3.0

Others

Africa

Latin America

Middle East

20112010200920082007

Total

Training

Scholarships

2006

-10%

-5%

0%

5%

10%

15%

20%

25%

0

1,000,000,000

2004 2005 2006 2007 2008 2009 2010 2011

2,000,000,000

3,000,000,000

4,000,000,000

5,000,000,000

6,000,000,000


Peso

s

201220112010200920082007

104%

10%

101%

11%

86%

17%

77%

28%

72%

25%

50%

11%


0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

10,000,000

0

20

40

60

80

100

120

140

160

180

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011


Num

ber

of w

ells


Annual Production

2000

3000

4000

5000

6000

7000

8000

9000

10000

11000

12000

20112010200920082007200620052004200320022001


Peta

joul

es

Production


0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2010-20112000-20091990-19991980-19891970-19791960-1969


201220112010200920082007

33,157

17,530

32,244

16,638

31,691

24,428

34,094

23,555

28,000

21,98716,839

14,248

2,5916,103

10,5397,263

15,606 15,627

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

0

2000

4000

6000

8000

10000

12000

14000



2026

2025

2024

2023

2022

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

12.9

%

13%

13%13

.8%

13.8

%

13.5

%

14.3

%

14.5

%

15.4

%

15.8

%17.9

%

17.1

%19.7

%21.2

%23.6

%26%

0

20

40

60

80

100

120

2011 2011 2013201020092008200720062005


Dol

lars


0

500

1000

2000

2018

2016

2014

2012

2010

2008

2006

2004

2002

2001

2017

2015

2013

2011

2009

2007

2005

2003

1500

2000

2500

3000

3500

GNL ImportsImports

0

50

100

150

200

250

300

201120102009200820072006200520042003200220012000

OECD

Mexico

U.S.

Great Britain

France

Chile

Norway

OECD


Mexico

U.S.

Great Britain

France

Chile

Norway

0

50

100

150

200

250

300

350

201120102009200820072006200520042003200220012000

Non-oil Revenues

OilRevenues

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

20122011201020092008200720062005200420032002

Photovoltaic

Nuclear-electrical

Geo-thermal

Eolic

Coal-fired

Dual

Thermo-electrical

Combined-cycle

Hydro-electrical

0

10

20

30

40

50

60

70

80



1 2 3 4 5

6 7 8 9 10

11 12 13 14 15

16 17 18 19

14

The symbiosis between Pemex and the Mexican State

15

ThE SyMbIOSIS bETWEEN PEMEx AND ThE MExICAN STATE2.1 WhAT DOES PEMEx DO NOWADAyS? WhAT DO WE WANT iT TO DO?

What should be the goal of Pemex? Simply put, why do we want Pemex to exist? These questions may

be answered with one of the following: Pemex ought to be a productive company that maximizes its

long-term oil resources, or it should be an entity which serves as a public policy instrument, an authentic

leverage for national development by using different productive chains. Ultimately, the chosen answer

will completely determine the debate around Pemex.

The first step in this debate is to know the major role that Pemex currently plays on the hydrocarbon

industry. According to the Regulatory Law of the 27th Constitutional Article, Pemex and its subsidiary

bodies (all of them, decentralized of the public state-owned administration) are the conduit through

which several strategic activities are exclusively carried out. Examples of these activities are exploration,

exploitation, refining, transporting, storing, distributing and selling oil and products obtained from its re-

fining; exploration, exploitation, elaborating and selling gas, as well as transportation and storage needed

to interconnect upstream, also the elaboration, transporting, storing, distribution and sales of oil and gas

derivatives and which may serve as basic industrial commodities and constitute basic petrochemicals

(ethane, propane, butane, pentane, hexane, heptane, raw material for smoke, naphta and methane).

Additionally, Pemex is the dominating agent of the liberalized industry of natural gas, with about 90% of

the country’s ducts destined for that service. It also exercises control over gasoline stations and other

liquid fuels through its very own service stations.

It is worth to remark that, in any case, Pemex may enter into contracts with third parties regarding infra-

structure or provision of services for the better execution of its activities, always as long as the payment

is made in cash and in no case will the property over hydrocarbons shall be conceded, there will not

exist shared production contracts nor will they compromise any production percentages or the value of

hydrocarbon sales or its derivatives, nor the revenues of the contracting entity.

This legal framework was not always this way and a brief review to the historic evolution of oil legislation in

our country reveals how the industry became more enclosed to the detriment of its productive efficiency.

2.2. EvOLuTiON Of OiL LEGiSLATiON iN MExiCO

During the Porfirio Díaz government, oil industry was treated with the liberal spirit of the 1857 Con-

stitution, which didn’t reserve to the State the property of resources. After the discovery of the first oil

field in El Ébano, San Luis Potosí on 1901 the first Oil Law was issued, through which oil companies

established in Mexico had exploration permits and exploitation patents that involve a broad dominion


16

over the extracted resources and the investments made, with extremely advantageous conditions.13On

the first years of the 20th century tension grew between Mexican government and American and British

companies that controlled the industry (during that time, the major players were El Águila Oil Company

and Huasteca Petroleum Company), which hit a critical point with the 1915 Oil Law given that it ordered

the suspension of oil works just as the Mexican Revoluton reached its climax.

With this background, the debates that preceded the 1917 Constitution concluded with the principle

according to which, society rights (represented by the State) would be above individual property rights,

in order to regulate its distribution, use and conservation. That way, the 27th Constitutional article es-

tablished the regimen of exclusive property of the nation, including subsoil resources as well as hydro-

carbons, which also were subject to a direct, inalienable and imprescriptible dominion.14 In the face of

these restrictions, a concession scheme was implemented for “regular” works of oil exploitation. The new

Constitution ordered as well that the contracts, which must be signed prior to their entry into force, ought

to be reviewed under these new Constitutional principles.

The major shift in the conception of the country’s natural resources resulted in serious aggravations to-

wards oil companies, which lodged appeals that complained for the violation to their acquired rights and

belligerently managed to get a strong diplomatic pressure on the Mexican government (particularly com-

ing from the U.S.), which derived in the Bucareli Agreements of 1923 and the Oil Law of 1925, reformed

in 1928.15 These laws were great victories for foreign companies since they ended up recognizing the

non-retroactivity of the 27th Constitutional article in their perjury16; the 1920s were a decade in which ma-

jor oil interests were favored in return for the legitimacy of the new State emanating from the Revolution.

This trend changed during the first years of the 1930s in which the dawn of the regulation of oil industry

is observed, with the creation of Mexican Petroleum Company (Petromex), especially to guarantee sup-

ply for government and railroads, as well as the issuing of decrees and Presidential agreements regard-

ing well perforation, reserves and investigation of the state of the industry, among others. As soon as

the Lázaro Cárdenas administration started in 1934, a Sexennial Plan was structured in which a series

of objectives that foreshadowed a more interventionist State in the economy, and in 1936 the Expropia-

tion Law was issued, which would serve as the basis for the oil industry’s ulterior expropriation decree.

For years, oil workers of several companies which operated in Mexico had tried to improve their employ-

ment situation. Many unions of companies had gathered in 1936 on a single organization: the Oil Work-

ers Union (STPRM), which would be integrated within the Confederation of Mexican Workers (CTM)17.

13 Pastor Rouaix: Genesis of articles 27 and 123 of the 1917 Political Constitution, Talleres Gráficos de la Nación, p. 29-30.

14 Memorandum on the initiative of article 27th of the Constitutional project, referring to the Republic’s property, presented by several Constituent Congresses. Deputies on the session held on January 25th, 1917.

15 José de Jesús Martínez Gil: Mexican Oil. Brief History. Its Evolution. Current State, Porrúa editorial, Mexico City, 2012, p.14

16 Miriam Grunstein. From the Cave to the Market. A tour around the world of oil negotiations, CIDAC, Mexico, 2010, p. 58

17 Martínez, op. cit., p.81

17

ThE SyMbiOSiS bETWEEN PEMEx AND ThE MExiCAN STATE

The extraordinary conditions in which oil companies kept operating and the low wages given to their

workers triggered a labor conflict in 1937. The refusal of oil companies to accept the workers’ demands

led the matter towards the Labor Board, which reviewed if companies had enough ability to comply. The

Board’s arbitration ruled in favor of the workers, but oil companies refused to comply by filing an am-

paro that was subsequently denied by the Supreme Court. By observing the companies’ rebelliousness,

Cárdenas decided to expropriate all actives of the oil industry on March 18th, 1938. The expropriation

decree too was disputed by the oil companies but the Supreme Court determined that an expropria-

tion wouldn’t require court hearing or previous compensation. On June 7th of that same year the entity

Petróleos Mexicanos was formally created.18

Following this trend, the Constitution was reformed in 1940 to eliminate concessions regarding hydro-

carbons with the goal of avoiding more problems with particular interests and enabling the State to as-

sume absolute control of oil exploitation. In 1941, with the aim of developing the aforementioned reform,

legislation that acknowledged the possibility of joint contracts with particular entities was issued, it was a

sort of risk-contracts whose considerations consisted in the payment of a percentage in the hydrocarbon

production. However, this scheme was not successful since the contract procedures were extremely

politicized and there was always a higher risk than possibilities of revenue for the companies involved.

Afterwards, in 1958, a new legislation was enacted, which established the existence of project contracts but

without paying percentages of hydrocarbon production but in cash only. This legislation greatly broadened

the activities reserved to Pemex, with an expanded interpretation of the “many hydrocarbon exploitations”

that the Constitution highlighted. The main argument behind this legislative change was to boost the in-

dustrial development in the country, particularly, in the transformation industry which uses oil products as

raw materials.19Those were the years of the country’s industrialization, import-substitution as well as the

nationalization of the electric industry. In 1960 a new Constitutional reform was issued regarding the de-

termination of the national territory and the detail of the resources that Mexico has, in which the legislative

process was used to forbid all oil contracts, on the understanding that those were disguised concessions in

which the direct property of the nation regarding hydrocarbons wasn’t protected.

In the end, lots of these changes were made under public criteria that looked forward to strengthening

the alliance between STPRM and the federal government, the former being fundamental in the support

within the PRI stronghold that was CTM, in a time of confrontation between the State and the largest

unions (mining and railroads, mainly). Following this logic, years later, after the oil boom that occurred

during the 1970s and its subsequent economic collapse, the state monopoly was further strengthened

by including the economic governance of the state and the concept of exclusive “strategic areas”, in-

18 Lorenzo Meyer: Mexico and the United States on the Oil Conflict, 1917-1942. Colección Centro de Estudios Internacionales, El Colegio de México, Mexico 1981.

19 Explanatory memorandum on the Initiative of the Legislation of the 27th Constitutional Article regarding Oil, dated November 25th, 1958.


18

cluding oil and basic petrochemicals in the 25th and 28th Constitutional articles.20

In the 1990s, with the economic opening promoted by Carlos Salinas, changes to the energy sector

were made, particularly regarding the private participation in electricity generation (self-consumption or

sales to the Federal Electricity Commission) but also in the creation of a regulating entity. In 1993, the

CRE (Energy Regulation Commission) is created, first as an advisory body of the Secretariat of Energy on

electricity and, since 1996, as a true regulating agency of the gas downstream activities which were lib-

eralized with the 1995 reform (natural monopolies of transport and distribution via ducts and the storage

linked and/or on a large scale), among others. With the aforementioned reform, the exclusivity of basic

petrochemicals was limited to only 8 products.21 For the first time in years, energy activities allowed the

participation of particular entities.

Additionally, 1992 was the year in which one of the most important changes in the administrative struc-

ture of Petróleos Mexicanos occurred: the separation of its operative activities in four subsidiaries with

the legal nature of decentralized bodies, while the planning and central management was managed

within the “corporate” Pemex. That way, Pemex Exploration and Production (PEP), Pemex Refining,

Pemex Gas and Basic Petrochemicals (PGPB) and Pemex Petrochemicals were created. Likewise, the

Administrative Council of Pemex was strengthened in order to be the company’s supreme governing

and managing body, though its structure (6 representatives appointed by the federal government and 5

appointed by the union) was easily subordinated to the Secretariat of Finance and Public Credit (SHCP).

The 1990s reforms, though extensive, proved to be insufficient to avoid the deterioration of the hydro-

carbon sector, which enabled a further attempt of energy reform in 2008. Its intention was to increase

competition in the hydrocarbon market but it was reduced to legal changes that, even with President

Felipe Calderón’s praise, didn’t manage to address the major issues. Of course, a major contribution of

the reform was the creation of the National Hydrocarbons Commission, a decentralized body from the

Secretariat of Energy in charge of regulation the oil exploitation and extraction, through the technical

advice of the projects, in order to keep the reserve levels. Another important element of the reform was

the creation of the new “incentive contracts” that are sort of shared production contracts where produc-

tion is not shared. These contracts that, according to Pemex advisor, Rogelio Garca Neri, were part of

a generic model originally thought for deep-water and non-conventional wells projects, for example,

Chicontepc, and turned out to be insufficient to attract private investment due to its lack of essential

incentives to compensate geological and financial risks of non-conventional and deep-water projects.22

Quoting Miriam Grunstein, “the greater flexibility and versatility of the New Generic Model, offered by the

Mexican State and Pemex, remains to be a service contract, with some added value in order to season

20 Roberto Ortega: Oil in Mexico. An Abducted Industry, Editorial Porrúa and Universidad Nacional Autónoma de Mexico, Mexico City, 2012.

21 Ibid.

22 Reasoned Opinion issued by the Professional Advisor, Dr. Rogelio Gasca Neri, at the 835th Extraordinary Session of Petróleos Mexicanos, held on November 15th, 2011.

19


its competitivity”.23 Legislation approved in 2008 continued the ban on generating contracts in which

particular entities are paid with a percentage of the exploitation total value. The observation that politi-

cians avoid the “millenary unnamable and politically expensive reform to the 27th Constitutional article

that bans the celebration of concessions and contracts”24 is once again observed.

This brief look back to the history of Mexican legislation shows how the oil industry in our country be-

came more restrictive regarding the activities that private entities could be able to do until practically

kicking them out of it, even if in the past twenty years there has been an important, yet insufficient, open-

ness on certain activities. A legitimate defense from foreign oil companies of a resource that has been

savagely exploited, without any sort of regulation, has created a myth in which Pemex is confused with

the oil industry, the Mexican state and the country itself. This confusion is generated since the existing

symbiosis between the federal government and the Mexican company.

2.3. ThE SCOPE Of ThE MONOPOLy AND iTS iNvESTMENTS.

The unyielding defense of the sacred 27th Constitutional article and an extensive interpretation of its

content have conducted Pemex to participate in all of the industry’s activities, from exploration and

perforation of oil fields to the commercialization of products such as gasoline, ready for final consump-

tion. Actually, there are several markets in which competition exists, with a range of companies offering

products and services of higher quality; there are simply no remarks in what sense that could affect na-

tional sovereignty. That way, if refining could be done by particulars, surely the country might have a less

risky supply of gasoline and other motor fuels.25 Another case is Pemex Gas and Basic Petrochemicals

(PGPB), which processes, sales and transports gas that, on one hand, depends from the monopolist

status of its major supplier, Pemex Exploration and Production (PEP) but in the other hand, exercise

an immense monopolist power by offering commercialization services of natural gas, taking it to points

of consumption, without the possibility of offering a competitive market with the reserve capacity in the

National Pipelines System.

Ultimately, the legal scheme in which Pemex is managed results in a pharaonic organization, not a

company, that is more inefficient every time and has not been able to improve due to political reasons.

The complex inner functioning of Pemex lacks a transparent accountability process; it enhances prac-

tices that lack market logic due to the structural panic of oil’s chain value and does not provide reliable

information for decision-making and the project evaluation at corporate level. That way, the only Pemex

subsidiary that reported earnings between 2011 and 20122 was PEP (58.989 billion pesos), which was

23 Miriam Grunstein, op. cit., p.5 of the annex.

24 Ibid. p. 220.

25 In the ideal case, private investors should settle in the country in order to increase the installed refinig capacity in Mexico using their technology and administrative and operation technology. However, what incentives would the particular entities have in invest-ing if there is quite enough installed infrastructure just a few kilometers away from our border, in the southern U.S.? The scheme of exporting oil and importing gasoline is absolutely rational. The refining business has very low profit margins (which only a few very specialized companies know how to exploit appropiately) and compensate their losses in that market through profits in production.


20

partially offset by the enormous losses generated by PGPB (-1.531 billion pesos), Pemex Petrochemicals

(-12.72 billion pesos) and Pemex Refining (-139.491 million pesos).26

Another element that highlights the mismanagement of Pemex is the oversight of scientific oil investigation

in our country. From 2148 institutions dedicated to scientific and technological investigation, only 122 study

subjects regarding the oil industry. The Mexican Oil Institute (IMP), conceived in 1965 as a beacon of oil re-

search and responsible of evaluating the technological advances that could increase Pemex’s production ca-

pacity, has been abandoned. With the exception of 2010, in which the budget allocated to IMP grew by 18%,

the growth rate of resources destined to this institution does not correspond the financial needs of oil research.

Graph 3. resources allocated to oil research

Source: elaborated by cIdac wIth audIted conSolIdated fInancIal StatementS of Pemex

The short-term vision of Pemex has overlooked the importance of developing talent on hydrocarbon research

as a necessary condition for the generation of value in the country. For instance, the Institutional Postgradu-

ate Program, created in 2002, has observed a lower number of students enrolled in doctoral programs, going

from 61 in 2006 to only 28 in 2011. In that same period, the number of graduates also decreased from 15 to

a mere 6. Additionally, the IMP reported that the total of financial resources destined towards the formation of

human resources went from 66 million pesos in 2006 to 45 million in 2011.

26 Audited consolidated financial statements, Pemex.

Others

Asia

Europe

USA

0

10

20

30

40

50

60

70

80

90

100

2007 2008 2009 2010 20110.0

0.5

1.0

1.5

2012 2012

2.0

2.5

3.0

Others

Africa

Latin America

Middle East

20112010200920082007

Total

Training

Scholarships

2006

-10%

-5%

0%

5%

10%

15%

20%

25%

0

1,000,000,000

2004 2005 2006 2007 2008 2009 2010 2011

2,000,000,000

3,000,000,000

4,000,000,000

5,000,000,000

6,000,000,000


Peso

s

201220112010200920082007

104%

10%

101%

11%

86%

17%

77%

28%

72%

25%

50%

11%


0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

10,000,000

0

20

40

60

80

100

120

140

160

180

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011


Num

ber

of w

ells


Annual Production

2000

3000

4000

5000

6000

7000

8000

9000

10000

11000

12000

20112010200920082007200620052004200320022001


Peta

joul

es

Production


0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2010-20112000-20091990-19991980-19891970-19791960-1969


201220112010200920082007

33,157

17,530

32,244

16,638

31,691

24,428

34,094

23,555

28,000

21,98716,839

14,248

2,5916,103

10,5397,263

15,606 15,627

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

0

2000

4000

6000

8000

10000

12000

14000



2026

2025

2024

2023

2022

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

12.9

%

13%

13%13

.8%

13.8

%

13.5

%

14.3

%

14.5

%

15.4

%

15.8

%17.9

%

17.1

%19.7

%21.2

%23.6

%26%

0

20

40

60

80

100

120

2011 2011 2013201020092008200720062005


Dol

lars


0

500

1000

2000

2018

2016

2014

2012

2010

2008

2006

2004

2002

2001

2017

2015

2013

2011

2009

2007

2005

2003

1500

2000

2500

3000

3500

GNL ImportsImports

0

50

100

150

200

250

300

201120102009200820072006200520042003200220012000

OECD

Mexico

U.S.

Great Britain

France

Chile

Norway

OECD


Mexico

U.S.

Great Britain

France

Chile

Norway

0

50

100

150

200

250

300

350

201120102009200820072006200520042003200220012000

Non-oil Revenues

OilRevenues

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

20122011201020092008200720062005200420032002

Photovoltaic

Nuclear-electrical

Geo-thermal

Eolic

Coal-fired

Dual

Thermo-electrical

Combined-cycle

Hydro-electrical

0

10

20

30

40

50

60

70

80



1 2 3 4 5

6 7 8 9 10

11 12 13 14 15

16 17 18 19

21


Graph 4. Investment in human resources.

Investment in the formation of competent human resources 2006-2011

(million pesos)

Source: mexIcan Petroleum InStItute’S 2006-2012 accountabIlIty rePort

The Mexican government has destined large (and growing) resources to oil activities with the aim of im-

proving the industry. During the past administration the amount of investment to Pemex was increased

by 57% and even so, the company still presents the problems shown in this document. As it will be

explained on the next chapter, investments on deep-water exploration has notably increased and what’s

been obtained is not in accordance to the expenditure made. The probability of finding oil in those places

is quite low and the cost of drilling is very high. It’s more intelligent to allocate resources on activities that

Pemex masters and to transfer risk to private entities that associate with in order to find these fields. The

acquisition of technology and the learning of operation are elements that could benefit Pemex from as-

sociating itself with private companies in order to drill new fields such as those with shale gas.

Others

Asia

Europe

USA

0

10

20

30

40

50

60

70

80

90

100

2007 2008 2009 2010 20110.0

0.5

1.0

1.5

2012 2012

2.0

2.5

3.0

Others

Africa

Latin America

Middle East

20112010200920082007

Total

Training

Scholarships

2006

-10%

-5%

0%

5%

10%

15%

20%

25%

0

1,000,000,000

2004 2005 2006 2007 2008 2009 2010 2011

2,000,000,000

3,000,000,000

4,000,000,000

5,000,000,000

6,000,000,000


Peso

s

201220112010200920082007

104%

10%

101%

11%

86%

17%

77%

28%

72%

25%

50%

11%


0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

10,000,000

0

20

40

60

80

100

120

140

160

180

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011


Num

ber

of w

ells


Annual Production

2000

3000

4000

5000

6000

7000

8000

9000

10000

11000

12000

20112010200920082007200620052004200320022001


Peta

joul

es

Production


0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2010-20112000-20091990-19991980-19891970-19791960-1969


201220112010200920082007

33,157

17,530

32,244

16,638

31,691

24,428

34,094

23,555

28,000

21,98716,839

14,248

2,5916,103

10,5397,263

15,606 15,627

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

0

2000

4000

6000

8000

10000

12000

14000



2026

2025

2024

2023

2022

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

12.9

%

13%

13%13

.8%

13.8

%

13.5

%

14.3

%

14.5

%

15.4

%

15.8

%17.9

%

17.1

%19.7

%21.2

%23.6

%26%

0

20

40

60

80

100

120

2011 2011 2013201020092008200720062005


Dol

lars


0

500

1000

2000

2018

2016

2014

2012

2010

2008

2006

2004

2002

2001

2017

2015

2013

2011

2009

2007

2005

2003

1500

2000

2500

3000

3500

GNL ImportsImports

0

50

100

150

200

250

300

201120102009200820072006200520042003200220012000

OECD

Mexico

U.S.

Great Britain

France

Chile

Norway

OECD


Mexico

U.S.

Great Britain

France

Chile

Norway

0

50

100

150

200

250

300

350

201120102009200820072006200520042003200220012000

Non-oil Revenues

OilRevenues

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

20122011201020092008200720062005200420032002

Photovoltaic

Nuclear-electrical

Geo-thermal

Eolic

Coal-fired

Dual

Thermo-electrical

Combined-cycle

Hydro-electrical

0

10

20

30

40

50

60

70

80



1 2 3 4 5

6 7 8 9 10

11 12 13 14 15

16 17 18 19


22

Table 1. Public investment in the oil industry (million of current pesos)

Source: 2012-2026 ProSPectIve for the crude oIl market. SecretarIat of energy

Certainly, there is no need for Pemex to monopolize every activity in the sector. And nevertheless, the

Pemex intervention in several of these markets wouldn’t be as problematic if its functioning wasn’t so

inefficient. A lot of this inefficiency lies in the political use given to the company.

2.4 ThE POLiTiCAL PrObLEM Of PEMEx

The problems of Pemex, contrary to popular belief, are eminently political. The Mexican oil industry faces

several economic challenges because of the international environment or for internal matters, but most

of the problems shown in this document can be explained by the company’s mismanagement as a part

of the federal government.

On one hand, the abundance of available resources in Mexican fields throughout the 20th century

made us focus in this industry as the public policy tool that enabled us to develop various industries

around it. The legal mandate through which Pemex could develop the national productive appara-

tus was clearly established in the legislation of the 27th Constitutional article. That way, in several

activities national companies were favored in many of the sector’s activities, even if they were more

expensive than national ones, via Pemex’s acquisitions. The goal was always to employ the largest

number of people possible, criteria through which the federal government allowed the excessive

growth of the STPRM.

On the other hand, it was this very oil boom and the extraordinary revenues coming from oil exports,

which allowed the work of a government that didn’t want to assume the political cost of taxing Mexicans.

Rather than finding the best tax collection system in our country, public finances were tangled with oil

revenues. This phenomenon is explained below.

INvESTMENT 2007 2008 2009 2010 2011

Pemex-Exploration and Production

146,953.8 211,021.6 226,401.4 239,408.8 235,941.8

Pemex-refining 15,642.1 18,653.5 18,486.0 22,550.7 25,157.3

Pemex-Gas and basic Petrochemicals

2,968.1 4,433.9 3,912.6 3,887.3 3,018.7

Pemex-Petrochemicals 925.6 1,412.2 2,049.8 2,462.1 2,426.2

Pemex Corporate 227.2 439.3 560.0 205.6 716.6

Pemex Investment funding

2,553.9 332.9 472.6 84.9 0.2

23


2.4.1 LAbOr uNPrODuCTivENESS, uNiONS AND POLiTiCS

Pemex, along with its four subsidiaries and the corporate offices, employs a total of 151,022 individuals

as of December 201227, a number way higher than other oil companies throughout the globe. British

Petroleum, Shell, ExxonMobil, but also public-owned oil companies like Petrobras and Statoil, employ a

significantly lower number of workers: Pemex almost doubles Exxon Mobil, Shell and BP’s staff, almost

three times more than Petrobras and almost six times the number of workers of Statoil. 28These are dra-

matic figures taking into account that these 5 companies participate in all the hydrocarbon productive

chain. Particularly, Petrobras and Statoil explore, produce, refine, transport and commercialize oil and

gas. Additionally, Statoil processes liquefied natural gas which it sells afterwards, and Petrobras has also

participated in the Brazilian electricity market. They do more with fewer workers: in a nutshell, they are

substantially more productive than Pemex. Nevertheless, a comparison with these companies could not

be fair if we don’t review total production.

The current production volume of Pemex does not justify the employment of so many workers. During

2012, the company produced 3.7 million barrels of crude oil equivalent on a daily basis, a figure higher

than British Petroleum, Shell, Petrobras, Statoil and Ecopetrol29. In short, Pemex needs 6.5 more em-

ployees than Statoil to produce twice as much as the Norwegian company. Using a labor productivy’s

simple approach, Graph 530 reveals the workers improductivity when contrasting different oil companies

worldwide, even public ones.

27 2012 Pemex Annual Report

28 Figures obtained in the 2012 Annual Reports of the aforementioned companies delivered to the U.S. Securities and Exchange Commission (20-F form).

29 According to data revealed to the U.S. Securities and Exchange Commission by oil companies themselves their 2012 production was as follows: Ecopetrol, 745 thousand barrels of oil equivalent per day (Mboed); Statoil, 1,805 Mboed; Petrobras, 2,458 Mboed; Shell, 3,262 Mboed; British Petroleum, 2,458 Mboed; Pemex, 3,697 Mboed; and ExxonMobil, 4,239 Mboed.

30 A previous version of this document contained an inaccuracy regarding data of production per worker. The current version has been corrected.


24

Graph 5. Production per worker

(Daily barrels per occupied individual)

Source: elaborated by the authorS wIth data from the comPanIeS’ annual rePortS, PreSented to the u.S.

SecurItIeS and exchange commISSIon.

Another element where the labor cost can be observed is the entity’s working liabilities. The number

of individuals that have worked in Pemex and that currently labor there, besides the onerous pension

schemes that their retired staff have, result in a labor liability of over 1.3 billion pesos as of March 2013.31

This figure is equal to the 64.3% of the company’s total assets and will continue to increase as long as

there is no restructuration to the pension system. The retirement scheme of the Oil Workers Union’s Col-

lective Labor Contract establishes that a worker with 25 years of service and at least 55 years of age will

receive 80% of his or her salary as a pension. As the years of service increase, a 4% rate will continue

until a 100% of his or her salary is reached, but also the sum total will increase in the same rate as the

percentage in which active workers have increased their salaries in the contract revisions. Additionally,

the retired workers will receive an annual bonus equal to the number of days established in the 152nd

clause of the Collective Labor Contract, even if they don’t labor at the company anymore.32 This condi-

tion and other labor benefits increased unnecessarily the costs for Pemex. It is worth asking: why is it so

31 This number increased considerably between 2011 and 2012 due to a change in the form in which it is measured in order to sat-isfy international financial practices by adjusting the discount rate from 8.57% to 6.9% but this change does not take into account the percentage of total assets that liabilities account for.

32 According to the 152nd Clause of the Collective Labor Contract 60 days of salary are paid as a bonus even if in the labor law of any private company it is reduced to a mere 15 days of work. Oil workers receive a bonus 4 times higher.

Others

Asia

Europe

USA

0

10

20

30

40

50

60

70

80

90

100

2007 2008 2009 2010 20110.0

0.5

1.0

1.5

2012 2012

2.0

2.5

3.0

Others

Africa

Latin America

Middle East

20112010200920082007

Total

Training

Scholarships

2006

-10%

-5%

0%

5%

10%

15%

20%

25%

0

1,000,000,000

2004 2005 2006 2007 2008 2009 2010 2011

2,000,000,000

3,000,000,000

4,000,000,000

5,000,000,000

6,000,000,000


Peso

s

201220112010200920082007

104%

10%

101%

11%

86%

17%

77%

28%

72%

25%

50%

11%


0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

10,000,000

0

20

40

60

80

100

120

140

160

180

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011


Num

ber

of w

ells


Annual Production

2000

3000

4000

5000

6000

7000

8000

9000

10000

11000

12000

20112010200920082007200620052004200320022001


Peta

joul

es

Production


0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2010-20112000-20091990-19991980-19891970-19791960-1969


201220112010200920082007

33,157

17,530

32,244

16,638

31,691

24,428

34,094

23,555

28,000

21,98716,839

14,248

2,5916,103

10,5397,263

15,606 15,627

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

0

2000

4000

6000

8000

10000

12000

14000



2026

2025

2024

2023

2022

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

12.9

%

13%

13%13

.8%

13.8

%

13.5

%

14.3

%

14.5

%

15.4

%

15.8

%17.9

%

17.1

%19.7

%21.2

%23.6

%26%

0

20

40

60

80

100

120

2011 2011 2013201020092008200720062005


Dol

lars


0

500

1000

2000

2018

2016

2014

2012

2010

2008

2006

2004

2002

2001

2017

2015

2013

2011

2009

2007

2005

2003

1500

2000

2500

3000

3500

GNL ImportsImports

0

50

100

150

200

250

300

201120102009200820072006200520042003200220012000

OECD

Mexico

U.S.

Great Britain

France

Chile

Norway

OECD


Mexico

U.S.

Great Britain

France

Chile

Norway

0

50

100

150

200

250

300

350

201120102009200820072006200520042003200220012000

Non-oil Revenues

OilRevenues

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

20122011201020092008200720062005200420032002

Photovoltaic

Nuclear-electrical

Geo-thermal

Eolic

Coal-fired

Dual

Thermo-electrical

Combined-cycle

Hydro-electrical

0

10

20

30

40

50

60

70

80



1 2 3 4 5

6 7 8 9 10

11 12 13 14 15

16 17 18 19

25


essential for the company to have exclusive schools and hospitals for its workers? Moreover, why does

it have to generate and pay for sports equipment and all of the uniforms and facilities that their workers

use for that purpose alone?

The most harmful symbiosis between Pemex and the government has its roots in the partisanship of

the oil union. From its beginnings in the 1930s, the union was part of the working sector of the National

Revolutionary Party (PNR) in its transformation on the Mexican Revolution Party (PRM), both predeces-

sors of the current Institutional Revolutionary Party (PRI). The corporate system of the aforementioned

party needed of the working class in order to supply its ranks and provide some legitimacy into the politi-

cal establishment. Most of the demands asked by unions were satisfied with the aim of getting their vote

for PRI.33 Leaders who were capable of gathering that support were rewarded in different ways. With the

approval of the ruling party, several public unions were strengthened: for example, oil workers, teachers,

and electricians, among others. The importance that these leaders acquired in different posts of popular

election within Congress or the party itself is well known.34 This linking has perpetually increased the

political cost of energy reforms in the past due that any change on the company’s inefficient labor condi-

tions ran the risk of not satisfying STPRM and its peer groups. The fear of legislators of losing the support

of these unions in elections forced them to tone down the 2008 reform. Now that PRI is in power and

could benefit from a reform that will improve Pemex, the STPRM stance might change.

2.4.2. ThE fiSCAL DEPENDENCE Of PEMEx

The most visible part of Pemex’s political problem is within fiscal matters. The dependence of the fed-

eral government’s public finances from oil revenues is alarming. Currently, they represent 32.8% of the

public sector’s budgetary revenues35. This percentage has kept stable since 1995, with some minor

highs and lows in different times, mainly due to contractions of the Gross Internal Product rather than tax

changes. An important part of the federal government’s expenses (as well as state and municipal ones)

has its origin in oil revenues. This is a very harmful situation for the country given that the volatility of oil

prices and the reduction of our production might jeopardize the State’s finances if a fiscal reform that

fixes these income sources is not put in place. It is worth to highlight the 20.9% decrease of oil revenue

during the first quarter of 2013 mainly due to a drop in the price per barrel and the decrease in the

number of produced barrels.36The income that come from exporting oil don’t have to be completely sub-

stituted – given that in every country in the world, governments tax oil companies rather highly – but we

should be able to survive, that is to say, not depend entirely, of these oil revenues. Even more so, the po-

litical problem of public finances lies entirely in the lack of incentives from politicians to make an energy

33 Luis Javier Garrido: The Institutionalized Revolution Party (Half a Century of Power in Mexico). The Formation of a New State (1928-1945), Siglo Veintiuno Editores, Mexico City, 1982.

34 The current leader of STPRM, Carlos Romero Deschamps, is the sixth Senator of the PRI party list. In a similar situation, the former leader of the teachers union, Elba Esther Gordillo, was the coordinator of federal Deputies, besides of being Secretary General of the aforementioned party.

35 Pertinent Statistics of the Public Finances of SHCP. Data as of April 2013.

36 Pertinent Statistics of the Public Finances of SHCP. Data as of April 2013.


26

reform, given that it implies reviewing how taxes are collected (the way of generating non-oil revenues).

Despite that a fiscal reform has to come up at the moment of implementing an energy reform, these are

two completely different reforms and should be treated accordingly. There is an economic theory and

models of optimal tax levy in Mexico in order to maximize recollection, which has nothing to do with the

structure of hydrocarbon industry (public monopoly or open to competition) and the management of oil

revenues. The main issue lies in not acknowledging that difference.

Graph 6. budgetary revenues of public sector

Source: SecretarIat of fInance and PublIc credIt

The fear of over-taxing Pemex or receiving less revenues from the oil industry if fields were open to pri-

vate investments (for example, with shared production or risk contracts) is one of the main arguments

against a major energy reform. It should be acknowledged that the impact in terms of tax recollection

could be mitigated with adequate oil taxing to companies that participate in these contracts, in addition

to the greater export volume for accessing non-exploited reserves in deep-water fields or unconventional

wells. Also, the dependence of oil revenues would be lower if the Tax Administration Service (SAT) could

increase the number of people that do pay taxes by lowering tax avoidance and evasion.

Others

Asia

Europe

USA

0

10

20

30

40

50

60

70

80

90

100

2007 2008 2009 2010 20110.0

0.5

1.0

1.5

2012 2012

2.0

2.5

3.0

Others

Africa

Latin America

Middle East

20112010200920082007

Total

Training

Scholarships

2006

-10%

-5%

0%

5%

10%

15%

20%

25%

0

1,000,000,000

2004 2005 2006 2007 2008 2009 2010 2011

2,000,000,000

3,000,000,000

4,000,000,000

5,000,000,000

6,000,000,000


Peso

s

201220112010200920082007

104%

10%

101%

11%

86%

17%

77%

28%

72%

25%

50%

11%


0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

10,000,000

0

20

40

60

80

100

120

140

160

180

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011


Num

ber

of w

ells


Annual Production

2000

3000

4000

5000

6000

7000

8000

9000

10000

11000

12000

20112010200920082007200620052004200320022001


Peta

joul

es

Production


0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2010-20112000-20091990-19991980-19891970-19791960-1969


201220112010200920082007

33,157

17,530

32,244

16,638

31,691

24,428

34,094

23,555

28,000

21,98716,839

14,248

2,5916,103

10,5397,263

15,606 15,627

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

0

2000

4000

6000

8000

10000

12000

14000



2026

2025

2024

2023

2022

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

12.9

%

13%

13%13

.8%

13.8

%

13.5

%

14.3

%

14.5

%

15.4

%

15.8

%17.9

%

17.1

%19.7

%21.2

%23.6

%26%

0

20

40

60

80

100

120

2011 2011 2013201020092008200720062005


Dol

lars


0

500

1000

2000

2018

2016

2014

2012

2010

2008

2006

2004

2002

2001

2017

2015

2013

2011

2009

2007

2005

2003

1500

2000

2500

3000

3500

GNL ImportsImports

0

50

100

150

200

250

300

201120102009200820072006200520042003200220012000

OECD

Mexico

U.S.

Great Britain

France

Chile

Norway

OECD


Mexico

U.S.

Great Britain

France

Chile

Norway

0

50

100

150

200

250

300

350

201120102009200820072006200520042003200220012000

Non-oil Revenues

OilRevenues

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

20122011201020092008200720062005200420032002

Photovoltaic

Nuclear-electrical

Geo-thermal

Eolic

Coal-fired

Dual

Thermo-electrical

Combined-cycle

Hydro-electrical

0

10

20

30

40

50

60

70

80



1 2 3 4 5

6 7 8 9 10

11 12 13 14 15

16 17 18 19

27

It’s not all about oil


28

IT’S NOT ALL AbOuT OIL

3.1 ENErGy iNSECuriTy Or “ALL EGGS iN ThE SAME bASKET”

Keeping the current state of things, Mexico will not be energetically sustainable in 10 years.37 The energy

demand increased at an annual rate of 2.08% between 2000 and 2011, while the production of primary

energy decreased by 0.3% within the same period.38 If these trends continue, our country could turn

into a net energy importer despite having many resources within its own borders. It’s essential for the

Mexican government to engage in long-term public policies that will enable the access to efficient energy

sources, environmentally clean and that will boost the economy’s development.

Graph 7. Closing the gap between national consumption and energy production

Source: elaborated by cIdac wIth data from the natIonal energy balance, SecretarIat of energy.

Mexican energy security is at risk because short-term policies that use hydrocarbons as the main

support of public finances when they are, at the same time, the main source of electricity in our

country, have been favored. As previously mentioned, the apparent symbiosis that exists between

Pemex and the Mexican government has resulted in policies based on the exploration and exploitation

37 In the context of the 75th anniversary of the oil expropriation, President Enrique Peña Nieto claimed that proved reserves, which constitute 44,350 million barrels, will have run out within 10 years.

38 Secretariat of Energy. 2013-2027 Energy National Strategy

Others

Asia

Europe

USA

0

10

20

30

40

50

60

70

80

90

100

2007 2008 2009 2010 20110.0

0.5

1.0

1.5

2012 2012

2.0

2.5

3.0

Others

Africa

Latin America

Middle East

20112010200920082007

Total

Training

Scholarships

2006

-10%

-5%

0%

5%

10%

15%

20%

25%

0

1,000,000,000

2004 2005 2006 2007 2008 2009 2010 2011

2,000,000,000

3,000,000,000

4,000,000,000

5,000,000,000

6,000,000,000


Peso

s

201220112010200920082007

104%

10%

101%

11%

86%

17%

77%

28%

72%

25%

50%

11%


0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

10,000,000

0

20

40

60

80

100

120

140

160

180

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011


Num

ber

of w

ells


Annual Production

2000

3000

4000

5000

6000

7000

8000

9000

10000

11000

12000

20112010200920082007200620052004200320022001


Peta

joul

es

Production


0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2010-20112000-20091990-19991980-19891970-19791960-1969


201220112010200920082007

33,157

17,530

32,244

16,638

31,691

24,428

34,094

23,555

28,000

21,98716,839

14,248

2,5916,103

10,5397,263

15,606 15,627

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

0

2000

4000

6000

8000

10000

12000

14000



2026

2025

2024

2023

2022

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

12.9

%

13%

13%13

.8%

13.8

%

13.5

%

14.3

%

14.5

%

15.4

%

15.8

%17.9

%

17.1

%19.7

%21.2

%23.6

%26%

0

20

40

60

80

100

120

2011 2011 2013201020092008200720062005


Dol

lars


0

500

1000

2000

2018

2016

2014

2012

2010

2008

2006

2004

2002

2001

2017

2015

2013

2011

2009

2007

2005

2003

1500

2000

2500

3000

3500

GNL ImportsImports

0

50

100

150

200

250

300

201120102009200820072006200520042003200220012000

OECD

Mexico

U.S.

Great Britain

France

Chile

Norway

OECD


Mexico

U.S.

Great Britain

France

Chile

Norway

0

50

100

150

200

250

300

350

201120102009200820072006200520042003200220012000

Non-oil Revenues

OilRevenues

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

20122011201020092008200720062005200420032002

Photovoltaic

Nuclear-electrical

Geo-thermal

Eolic

Coal-fired

Dual

Thermo-electrical

Combined-cycle

Hydro-electrical

0

10

20

30

40

50

60

70

80



1 2 3 4 5

6 7 8 9 10

11 12 13 14 15

16 17 18 19

29

iT’S NOT ALL AbOuT OiL

of oil resources following political guidelines rather than economic or environmental ones. Not only

does a huge amount of Pemex revenues are used to repair tax loopholes, but there has been a boost

for a hydrocarbon investment portfolio that maximizes the number of barrels immediately extracted

(regardless of the deterioration within the fields’ productive life that this may cause) in addition that

there hasn’t been enough investment in the infrastructure of transmission and distribution both of

electricity as well as its main input, natural gas. Mexico has a long way to go until it can comply with

obligations contracted internationally regarding the percentage of electricity generation coming from

renewable energies.

3.2 PrODuCTiON AND ThE iNvESTMENT POrTfOLiO

Mexican oil production has experienced a decrease of almost one million barrels per day since

its historical 2004 peak due to the depletion of exploited wells, along with a lower restitution of

hydrocarbon reserves within the country. In the last fifty years, crude oil production increased by

838% while the reserve incorporation shattered by 3,725%.39 This trend can be explained for two

reasons: a major drop in the number of drilled exploratory wells and the decline of those that are

currently in operation. Between 1960 and 1979 Pemex drilled an average of more than 100 wells

per year, while in the subsequent decades it only opened 50 annually.40Additionally, from a total of

262 fields with oil and associate gas reserves, 192 have reached their plateau or are in the middle

of a declining process; 3 out of every 4 oil fields in the country will not increase their production in

the coming years.41 The most serious issue in the matter lies in the fact that about 40% of the fields

in the development phase come from the Chicontepec complex, which possesses heavy oil, thereby

reducing the possible extraction by around 90%.42

39 National Hydrocarbons Commission, Hydrocarbon Indices

40 Pemex drilled 57 wells per year in the 1980s, 25 in the 1990s, 67 in the past decade and 37 between 2010 and 2012. Source: National Hydrocarbons Commission.

41 Ibid.

42 Even though the Chicontepec field has 3p reserves that amount up to 2.2 billion barrels of crude oil equivalent, most of them come from heavy crude oil. Despite having a greater density than conventional oil, its extraction requires a different process than conventional oil. Consequently, not only is it more expensive and has a greater environmental impact but generally speaking, only 6-10% of the resource can be extracted (Source: Dr. Vinicio Suro Perez, Director General of the Mexican Oil Institute).

30

Graph 8. Production and exploratory wells

Source: elaborated by the authorS uSIng hydrocarbon IndexeS, natIonal hydrocarbon commISSIon

The management of fields done by Pemex Exploration and Production has been inextricably linked

with the fiscal criteria of SHCP. The production of mature fields has been intensified, especially in

Cantarell, in order to take advantage of the high oil prices of the past decade without realizing the

impact that this would have on the field. The decrease in the number of barrels produced by Pemex

since 2004 shows this problem, but in the case of Cantarell, the result is amplified: the decline rate

of the Akal field (part of the Cantarell complex), reached 89%.43 In order to approach the issue of

the drop in production due to a decrease in Cantarell’s extraction, Felipe Calderón’s administration

sought to increase the restitution of oil reserves, reaching 104% restitution rates in 2012. Neverthe-

less, the reserves are 1P44 and almost all come from wells and fields that had already been discov-

ered. Only a small percentage comes from the discovery of new fields. On the other hand, regarding

2P reserves, from the 1980s decade onwards, the production is higher than the restitution in these

reserves. From the 2P reserves that were added during the last decade, around 80% comes from

the basins of shallow waters in the Mexican southeast.

43 Adrián Lajous, op. cit. p.30

44 The type of oil reserves is classified in 1P, 2P or 3P. The former are known as proved reserves, the second ones as probable reserves and the latter, as possible reserves.

Others

Asia

Europe

USA

0

10

20

30

40

50

60

70

80

90

100

2007 2008 2009 2010 20110.0

0.5

1.0

1.5

2012 2012

2.0

2.5

3.0

Others

Africa

Latin America

Middle East

20112010200920082007

Total

Training

Scholarships

2006

-10%

-5%

0%

5%

10%

15%

20%

25%

0

1,000,000,000

2004 2005 2006 2007 2008 2009 2010 2011

2,000,000,000

3,000,000,000

4,000,000,000

5,000,000,000

6,000,000,000


Peso

s

201220112010200920082007

104%

10%

101%

11%

86%

17%

77%

28%

72%

25%

50%

11%


0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

10,000,000

0

20

40

60

80

100

120

140

160

180

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011


Num

ber

of w

ells


Annual Production

2000

3000

4000

5000

6000

7000

8000

9000

10000

11000

12000

20112010200920082007200620052004200320022001


Peta

joul

es

Production


0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2010-20112000-20091990-19991980-19891970-19791960-1969


201220112010200920082007

33,157

17,530

32,244

16,638

31,691

24,428

34,094

23,555

28,000

21,98716,839

14,248

2,5916,103

10,5397,263

15,606 15,627

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

0

2000

4000

6000

8000

10000

12000

14000



2026

2025

2024

2023

2022

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

12.9

%

13%

13%13

.8%

13.8

%

13.5

%

14.3

%

14.5

%

15.4

%

15.8

%17.9

%

17.1

%19.7

%21.2

%23.6

%26%

0

20

40

60

80

100

120

2011 2011 2013201020092008200720062005


Dol

lars


0

500

1000

2000

2018

2016

2014

2012

2010

2008

2006

2004

2002

2001

2017

2015

2013

2011

2009

2007

2005

2003

1500

2000

2500

3000

3500

GNL ImportsImports

0

50

100

150

200

250

300

201120102009200820072006200520042003200220012000

OECD

Mexico

U.S.

Great Britain

France

Chile

Norway

OECD


Mexico

U.S.

Great Britain

France

Chile

Norway

0

50

100

150

200

250

300

350

201120102009200820072006200520042003200220012000

Non-oil Revenues

OilRevenues

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

20122011201020092008200720062005200420032002

Photovoltaic

Nuclear-electrical

Geo-thermal

Eolic

Coal-fired

Dual

Thermo-electrical

Combined-cycle

Hydro-electrical

0

10

20

30

40

50

60

70

80



1 2 3 4 5

6 7 8 9 10

11 12 13 14 15

16 17 18 19

31


Graph 9. restitution of 1P reserves

Source: www.cnh.gob.mx/rePortedeIndIcadoreS/exPloracIon

If the exploitation of Mexican fields has been neglected, the management of the investors’ portfolio has

been inefficient to say the least. Thrilled by the success of the U.S. in deep-water fields, Pemex has

begun drilling some wells at those depths. In the last years, the oil company managed to drill 19 deep-

water fields. We are still far away from the U.S. well drilling due to a lack of resources to do it. The field

exploitation at those depths is essential for our country but it requires an investment that Pemex doesn’t

have, and given the scarcity of resources it currently has, it is logical that those means ought to be des-

tined towards exploitation in shallow waters, a highly efficient activity. In deep waters and unconventional

different ways of production should be explored in order to diversify the risk of investing there.

Others

Asia

Europe

USA

0

10

20

30

40

50

60

70

80

90

100

2007 2008 2009 2010 20110.0

0.5

1.0

1.5

2012 2012

2.0

2.5

3.0

Others

Africa

Latin America

Middle East

20112010200920082007

Total

Training

Scholarships

2006

-10%

-5%

0%

5%

10%

15%

20%

25%

0

1,000,000,000

2004 2005 2006 2007 2008 2009 2010 2011

2,000,000,000

3,000,000,000

4,000,000,000

5,000,000,000

6,000,000,000


Peso

s

201220112010200920082007

104%

10%

101%

11%

86%

17%

77%

28%

72%

25%

50%

11%


0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

10,000,000

0

20

40

60

80

100

120

140

160

180

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011


Num

ber

of w

ells


Annual Production

2000

3000

4000

5000

6000

7000

8000

9000

10000

11000

12000

20112010200920082007200620052004200320022001


Peta

joul

es

Production


0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2010-20112000-20091990-19991980-19891970-19791960-1969


201220112010200920082007

33,157

17,530

32,244

16,638

31,691

24,428

34,094

23,555

28,000

21,98716,839

14,248

2,5916,103

10,5397,263

15,606 15,627

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

0

2000

4000

6000

8000

10000

12000

14000



2026

2025

2024

2023

2022

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

12.9

%

13%

13%13

.8%

13.8

%

13.5

%

14.3

%

14.5

%

15.4

%

15.8

%17.9

%

17.1

%19.7

%21.2

%23.6

%26%

0

20

40

60

80

100

120

2011 2011 2013201020092008200720062005


Dol

lars


0

500

1000

2000

2018

2016

2014

2012

2010

2008

2006

2004

2002

2001

2017

2015

2013

2011

2009

2007

2005

2003

1500

2000

2500

3000

3500

GNL ImportsImports

0

50

100

150

200

250

300

201120102009200820072006200520042003200220012000

OECD

Mexico

U.S.

Great Britain

France

Chile

Norway

OECD


Mexico

U.S.

Great Britain

France

Chile

Norway

0

50

100

150

200

250

300

350

201120102009200820072006200520042003200220012000

Non-oil Revenues

OilRevenues

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

20122011201020092008200720062005200420032002

Photovoltaic

Nuclear-electrical

Geo-thermal

Eolic

Coal-fired

Dual

Thermo-electrical

Combined-cycle

Hydro-electrical

0

10

20

30

40

50

60

70

80



1 2 3 4 5

6 7 8 9 10

11 12 13 14 15

16 17 18 19


32

Graph 10. Incorporation of 2P reserves and hydrocarbon Production

Source: natIonal hydrocarbon commISSIon, work rePort

During many years the exploration and exploitation of oil fields by Pemex was made in shallow waters.

According to the National Hydrocarbon Commission, 60% of the historic production in Mexico has been

extracted from fields with the aforementioned depths in basins of the country’s Southeast. The invest-

ment portfolio of Pemex was focused in this kind of wells but during the last administration, the trend was

reversed. While trying to obtain benefits from important deep-water fields, there was a major increase

regarding the resources destined to explore them. These resources have proved to be financially insuf-

ficient given that in the 2007-2012 period, for every 100 dollars invested in deep-water exploration,

between 14 and 23.5 barrels of crude oil equivalent were discovered, while in shallow waters 147 barrels

were obtained with the same 100 dollars.45 In this sort of field exploration a high risk remains due to the

low profitability of every investment, thereby exhibiting how essential it is to procure associations with

Pemex with private entities so the latter can absorb the risk of the investment.46

45 Source: National Hydrocarbon Commission. Note: the calculus range in deep waters depends on the inclusion of Trión and Supre-mus. It is assumed that 3P resources are up to 436 million of crude oil equivalent barrels and Supremus amount to 198 million of crude oil equivalent barrels.

46 In the Appendix one can observe a graphic that gathers all the projects of Pemex according to their class, profitability and size.

Others

Asia

Europe

USA

0

10

20

30

40

50

60

70

80

90

100

2007 2008 2009 2010 20110.0

0.5

1.0

1.5

2012 2012

2.0

2.5

3.0

Others

Africa

Latin America

Middle East

20112010200920082007

Total

Training

Scholarships

2006

-10%

-5%

0%

5%

10%

15%

20%

25%

0

1,000,000,000

2004 2005 2006 2007 2008 2009 2010 2011

2,000,000,000

3,000,000,000

4,000,000,000

5,000,000,000

6,000,000,000


Peso

s

201220112010200920082007

104%

10%

101%

11%

86%

17%

77%

28%

72%

25%

50%

11%


0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

10,000,000

0

20

40

60

80

100

120

140

160

180

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011


Num

ber

of w

ells


Annual Production

2000

3000

4000

5000

6000

7000

8000

9000

10000

11000

12000

20112010200920082007200620052004200320022001


Peta

joul

es

Production


0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2010-20112000-20091990-19991980-19891970-19791960-1969


201220112010200920082007

33,157

17,530

32,244

16,638

31,691

24,428

34,094

23,555

28,000

21,98716,839

14,248

2,5916,103

10,5397,263

15,606 15,627

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

0

2000

4000

6000

8000

10000

12000

14000



2026

2025

2024

2023

2022

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

12.9

%

13%

13%13

.8%

13.8

%

13.5

%

14.3

%

14.5

%

15.4

%

15.8

%17.9

%

17.1

%19.7

%21.2

%23.6

%26%

0

20

40

60

80

100

120

2011 2011 2013201020092008200720062005


Dol

lars


0

500

1000

2000

2018

2016

2014

2012

2010

2008

2006

2004

2002

2001

2017

2015

2013

2011

2009

2007

2005

2003

1500

2000

2500

3000

3500

GNL ImportsImports

0

50

100

150

200

250

300

201120102009200820072006200520042003200220012000

OECD

Mexico

U.S.

Great Britain

France

Chile

Norway

OECD


Mexico

U.S.

Great Britain

France

Chile

Norway

0

50

100

150

200

250

300

350

201120102009200820072006200520042003200220012000

Non-oil Revenues

OilRevenues

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

20122011201020092008200720062005200420032002

Photovoltaic

Nuclear-electrical

Geo-thermal

Eolic

Coal-fired

Dual

Thermo-electrical

Combined-cycle

Hydro-electrical

0

10

20

30

40

50

60

70

80



1 2 3 4 5

6 7 8 9 10

11 12 13 14 15

16 17 18 19

33


Graph 11. Investment in oil exploration during 2007-2012 (millions of pesos)

Source: natIonal hydrocarbon commISSIon

3.3. iNfrASTruCTurE AND NATurAL GAS SCArCiTy PrObLEMS iN MExiCO

Every peso destined to any venture within Pemex is a peso that isn’t invested in any other activity. In

this case, for every peso destined to the exploration of low profitability projects there’s a peso that won’t

contribute to building transport infrastructure. This latter problem represents one of the major chal-

lenges that the current administration faces regarding energy. The lag in the Mexican duct infrastructure

is evident with the problem of critical alerts of natural gas, which turned into a crisis during 2012. The

total demand for Mexican natural gas increased by 17% between 2007 and 2012 while the production

incremented in a much slower way (2% during the same period).47 Despite the existence of great shale

gas reserves, it is more profitable for Pemex to focus on oil production rather than natural gas. In this

scenario, upon a growing demand of the aforementioned fuel, the broadening of the gas duct network is

essential in order to avoid shortages as well as price and fees problems.

47 Secretariat of Energy, 2012-2026 Natural Gas Market Prospective.

Others

Asia

Europe

USA

0

10

20

30

40

50

60

70

80

90

100

2007 2008 2009 2010 20110.0

0.5

1.0

1.5

2012 2012

2.0

2.5

3.0

Others

Africa

Latin America

Middle East

20112010200920082007

Total

Training

Scholarships

2006

-10%

-5%

0%

5%

10%

15%

20%

25%

0

1,000,000,000

2004 2005 2006 2007 2008 2009 2010 2011

2,000,000,000

3,000,000,000

4,000,000,000

5,000,000,000

6,000,000,000


Peso

s

201220112010200920082007

104%

10%

101%

11%

86%

17%

77%

28%

72%

25%

50%

11%


0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

10,000,000

0

20

40

60

80

100

120

140

160

180

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011


Num

ber

of w

ells


Annual Production

2000

3000

4000

5000

6000

7000

8000

9000

10000

11000

12000

20112010200920082007200620052004200320022001


Peta

joul

es

Production


0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2010-20112000-20091990-19991980-19891970-19791960-1969


201220112010200920082007

33,157

17,530

32,244

16,638

31,691

24,428

34,094

23,555

28,000

21,98716,839

14,248

2,5916,103

10,5397,263

15,606 15,627

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

0

2000

4000

6000

8000

10000

12000

14000



2026

2025

2024

2023

2022

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

12.9

%

13%

13%13

.8%

13.8

%

13.5

%

14.3

%

14.5

%

15.4

%

15.8

%17.9

%

17.1

%19.7

%21.2

%23.6

%26%

0

20

40

60

80

100

120

2011 2011 2013201020092008200720062005


Dol

lars


0

500

1000

2000

2018

2016

2014

2012

2010

2008

2006

2004

2002

2001

2017

2015

2013

2011

2009

2007

2005

2003

1500

2000

2500

3000

3500

GNL ImportsImports

0

50

100

150

200

250

300

201120102009200820072006200520042003200220012000

OECD

Mexico

U.S.

Great Britain

France

Chile

Norway

OECD


Mexico

U.S.

Great Britain

France

Chile

Norway

0

50

100

150

200

250

300

350

201120102009200820072006200520042003200220012000

Non-oil Revenues

OilRevenues

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

20122011201020092008200720062005200420032002

Photovoltaic

Nuclear-electrical

Geo-thermal

Eolic

Coal-fired

Dual

Thermo-electrical

Combined-cycle

Hydro-electrical

0

10

20

30

40

50

60

70

80



1 2 3 4 5

6 7 8 9 10

11 12 13 14 15

16 17 18 19


34

Graph 12. The natural gas demand cannot be satisfied

Source: elaborated by cIdac wIth data from the natural gaS market ProSPectIve, SecretarIat of energy

Mexico has forgotten to expand the transportation network for gas and oil ducts and, as a result, major

economic and security issues have occurred. The limits for the transport infrastructure between the

supply points and the consumption points make impossible to import a greater volume of natural gas

in order to satisfy the needs of Mexican users. Additionally, according to the Secretariat of Energy48, the

National System of Gas Ducts operates with capacity levels superior to 85%, very close to its limit. This

could result in terrible consequences due that the accidents in the ducts increase and they tend to be fa-

tal.49 The combination of these elements results in critical alerts over the supply of the resource thereby,

directly influencing in the economic activity. Only in 2012, the 22 critical alerts presented accounted for

1,436 million dollars50.

48 Ibid.

49 Part of the problems of the gas and oil ducts network of Pemex is that the lack of maintenance of many of them causes costly and risky fuel losses. According to the CNH, during the 2000-2012 period, 6,239,236,594 cubic feet leaked and 12,670,710 oil liters were spilled. Only natural gas leaks were equal to the average monthly consumption of 231 thousand families of 4 members (1.32 million dollars).

50 This number does not take into account thefts to gas and oil ducts by organized crime, which account for 5 billion pesos annually. Source: Secretariat of Energy, National Energy Strategy, 2013-2027

Others

Asia

Europe

USA

0

10

20

30

40

50

60

70

80

90

100

2007 2008 2009 2010 20110.0

0.5

1.0

1.5

2012 2012

2.0

2.5

3.0

Others

Africa

Latin America

Middle East

20112010200920082007

Total

Training

Scholarships

2006

-10%

-5%

0%

5%

10%

15%

20%

25%

0

1,000,000,000

2004 2005 2006 2007 2008 2009 2010 2011

2,000,000,000

3,000,000,000

4,000,000,000

5,000,000,000

6,000,000,000


Peso

s

201220112010200920082007

104%

10%

101%

11%

86%

17%

77%

28%

72%

25%

50%

11%


0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

10,000,000

0

20

40

60

80

100

120

140

160

180

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011


Num

ber

of w

ells


Annual Production

2000

3000

4000

5000

6000

7000

8000

9000

10000

11000

12000

20112010200920082007200620052004200320022001


Peta

joul

es

Production


0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2010-20112000-20091990-19991980-19891970-19791960-1969


201220112010200920082007

33,157

17,530

32,244

16,638

31,691

24,428

34,094

23,555

28,000

21,98716,839

14,248

2,5916,103

10,5397,263

15,606 15,627

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

0

2000

4000

6000

8000

10000

12000

14000



2026

2025

2024

2023

2022

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

12.9

%

13%

13%13

.8%

13.8

%

13.5

%

14.3

%

14.5

%

15.4

%

15.8

%17.9

%

17.1

%19.7

%21.2

%23.6

%26%

0

20

40

60

80

100

120

2011 2011 2013201020092008200720062005


Dol

lars


0

500

1000

2000

2018

2016

2014

2012

2010

2008

2006

2004

2002

2001

2017

2015

2013

2011

2009

2007

2005

2003

1500

2000

2500

3000

3500

GNL ImportsImports

0

50

100

150

200

250

300

201120102009200820072006200520042003200220012000

OECD

Mexico

U.S.

Great Britain

France

Chile

Norway

OECD


Mexico

U.S.

Great Britain

France

Chile

Norway

0

50

100

150

200

250

300

350

201120102009200820072006200520042003200220012000

Non-oil Revenues

OilRevenues

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

20122011201020092008200720062005200420032002

Photovoltaic

Nuclear-electrical

Geo-thermal

Eolic

Coal-fired

Dual

Thermo-electrical

Combined-cycle

Hydro-electrical

0

10

20

30

40

50

60

70

80



1 2 3 4 5

6 7 8 9 10

11 12 13 14 15

16 17 18 19

35


Graph 13. Natural gas is not relevant for Pemex

Source: elaborated by the authorS wIth data from the mexIcan geologIcal ServIce, SecretarIat of economy

The lack of natural gas in the country has been nuanced by natural liquefied gas (LNG) in the gas

plants of Manzanillo and Altamira, as well as the oil product transport using tankers. Nevertheless, fuel

transportation through Mexican highways is not only inefficient but also insecure and has only favored

carriers who benefit from the inefficiency in the gas duct network. Additionally, on the face of the growing

demand for natural gas, its liquefied form will need to be imported even more given that the insufficient

infrastructure strangles U.S. imports. Natural gas prices in North America may be the cheapest in the

world51 but if we can’t take advantage of this condition by having to import the natural liquefied gas from

other parts of the world (like South America), Mexican price may have emerging pressures (in fact, it’s

already happening with the transportation rate adjustment authorized by CRE to Pemex for the gas im-

portation through Manzanillo, as to balance the system). The following graph shows how liquefied natural

gas imports, with regard to natural gas imports, have been notably increasing in the last few years and

it is expected to continue.

51 Even though that in 2013 the natural gas price in Texas is the cheapest in the world, there is concern in the other side of the border over the growing Mexican demand to import it, and the lack of infrastructure here and in the South and Southwest U.S. may elevate the Price by having Mexican demand to compete with Californian demand for the same gas. For more information on the matter, see also Growing Mexican Gas Market Creates Southwest Price Premiums from Bentek Energy, May 2013.

Others

Asia

Europe

USA

0

10

20

30

40

50

60

70

80

90

100

2007 2008 2009 2010 20110.0

0.5

1.0

1.5

2012 2012

2.0

2.5

3.0

Others

Africa

Latin America

Middle East

20112010200920082007

Total

Training

Scholarships

2006

-10%

-5%

0%

5%

10%

15%

20%

25%

0

1,000,000,000

2004 2005 2006 2007 2008 2009 2010 2011

2,000,000,000

3,000,000,000

4,000,000,000

5,000,000,000

6,000,000,000


Peso

s

201220112010200920082007

104%

10%

101%

11%

86%

17%

77%

28%

72%

25%

50%

11%


0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

10,000,000

0

20

40

60

80

100

120

140

160

180

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011


Num

ber

of w

ells


Annual Production

2000

3000

4000

5000

6000

7000

8000

9000

10000

11000

12000

20112010200920082007200620052004200320022001


Peta

joul

es

Production


0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2010-20112000-20091990-19991980-19891970-19791960-1969


201220112010200920082007

33,157

17,530

32,244

16,638

31,691

24,428

34,094

23,555

28,000

21,98716,839

14,248

2,5916,103

10,5397,263

15,606 15,627

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

0

2000

4000

6000

8000

10000

12000

14000



2026

2025

2024

2023

2022

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

12.9

%

13%

13%13

.8%

13.8

%

13.5

%

14.3

%

14.5

%

15.4

%

15.8

%17.9

%

17.1

%19.7

%21.2

%23.6

%26%

0

20

40

60

80

100

120

2011 2011 2013201020092008200720062005


Dol

lars


0

500

1000

2000

2018

2016

2014

2012

2010

2008

2006

2004

2002

2001

2017

2015

2013

2011

2009

2007

2005

2003

1500

2000

2500

3000

3500

GNL ImportsImports

0

50

100

150

200

250

300

201120102009200820072006200520042003200220012000

OECD

Mexico

U.S.

Great Britain

France

Chile

Norway

OECD


Mexico

U.S.

Great Britain

France

Chile

Norway

0

50

100

150

200

250

300

350

201120102009200820072006200520042003200220012000

Non-oil Revenues

OilRevenues

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

20122011201020092008200720062005200420032002

Photovoltaic

Nuclear-electrical

Geo-thermal

Eolic

Coal-fired

Dual

Thermo-electrical

Combined-cycle

Hydro-electrical

0

10

20

30

40

50

60

70

80



1 2 3 4 5

6 7 8 9 10

11 12 13 14 15

16 17 18 19


36

Graph 14. Natural gas imports

(million of cubic feet daily)

note: the valueS for 2013-2018 correSPond to the ScenarIo ProvIded by the 2012-2026 natural gaS

market ProSPectIve

Source: SecretarIat of energy

3.4 ELECTriCiTy GENErATiON CONCENTrATED iN hyDrOCArbONS.

The insufficient transportation network of natural gas has implications that go beyond of the market of

that fuel by having a direct impact in the country’s electricity generation. As can be seen in Graph 15, by

March 2013 more than half of Mexico’s electricity generation comes from combined-cycle power plants,

which use natural gas as its main input. Most of the plants of independent energy producers and the new

plants of the Federal Electricity Commission are combined-cycle, given that they are the most economi-

cally efficient to produce electricity. Nevertheless, the strong dependence in this fuel may trigger rises in

the electrical rates if there are extended periods of scarcity of the main input. It’s a simple decision: it’s

essential to build more gas ducts in order to increase the reach of this fuel at national level and to access

to it with the competitive U.S. prices.

Others

Asia

Europe

USA

0

10

20

30

40

50

60

70

80

90

100

2007 2008 2009 2010 20110.0

0.5

1.0

1.5

2012 2012

2.0

2.5

3.0

Others

Africa

Latin America

Middle East

20112010200920082007

Total

Training

Scholarships

2006

-10%

-5%

0%

5%

10%

15%

20%

25%

0

1,000,000,000

2004 2005 2006 2007 2008 2009 2010 2011

2,000,000,000

3,000,000,000

4,000,000,000

5,000,000,000

6,000,000,000


Peso

s

201220112010200920082007

104%

10%

101%

11%

86%

17%

77%

28%

72%

25%

50%

11%


0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

10,000,000

0

20

40

60

80

100

120

140

160

180

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011


Num

ber

of w

ells


Annual Production

2000

3000

4000

5000

6000

7000

8000

9000

10000

11000

12000

20112010200920082007200620052004200320022001


Peta

joul

es

Production


0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2010-20112000-20091990-19991980-19891970-19791960-1969


201220112010200920082007

33,157

17,530

32,244

16,638

31,691

24,428

34,094

23,555

28,000

21,98716,839

14,248

2,5916,103

10,5397,263

15,606 15,627

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

0

2000

4000

6000

8000

10000

12000

14000



2026

2025

2024

2023

2022

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

12.9

%

13%

13%13

.8%

13.8

%

13.5

%

14.3

%

14.5

%

15.4

%

15.8

%17.9

%

17.1

%19.7

%21.2

%23.6

%26%

0

20

40

60

80

100

120

2011 2011 2013201020092008200720062005


Dol

lars


0

500

1000

2000

2018

2016

2014

2012

2010

2008

2006

2004

2002

2001

2017

2015

2013

2011

2009

2007

2005

2003

1500

2000

2500

3000

3500

GNL ImportsImports

0

50

100

150

200

250

300

201120102009200820072006200520042003200220012000

OECD

Mexico

U.S.

Great Britain

France

Chile

Norway

OECD


Mexico

U.S.

Great Britain

France

Chile

Norway

0

50

100

150

200

250

300

350

201120102009200820072006200520042003200220012000

Non-oil Revenues

OilRevenues

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

20122011201020092008200720062005200420032002

Photovoltaic

Nuclear-electrical

Geo-thermal

Eolic

Coal-fired

Dual

Thermo-electrical

Combined-cycle

Hydro-electrical

0

10

20

30

40

50

60

70

80



1 2 3 4 5

6 7 8 9 10

11 12 13 14 15

16 17 18 19

37


Graph 15. Gross energy generated by type of technology

note: data aS of february 2013.

Source: federal electrIcIty commISSIon

The scarcity of natural gas in the country due to the reduced network of oil ducts is just one of several

elements that increase electricity prices in Mexico. That same electrical infrastructure is other of the

reasons for which electricity bills are so high. The obsolescence of power centrals puts an unnecessary

cost in the rates of public service. The growing decrease of the “reserve margin” implies that in order

to satisfy the national electrical demand, production needs to continue even if it means using the oldest

and less productive power plants. When these plants reach the end of their service lives or if they present

any failures, there’s the risk of having electrical scarcity and possible blackouts. To guarantee security in

the operation of the interconnected electrical system, its reserve margin (available effective generation

minus demand) ought to be enough to cover the contingencies that may be presented. Regardless that

between 2002 and 2011 the reserve margin was above the minimum recommended, in 2012, 27% is

operating underneath it. The decreasing trend that started in 2009 will not be reverted in coming years

according to estimated from the Secretariat of Energy despite that the participation of particular entities,

may it be through external production or self-consumption, has notably increased as to be more than the

third part of all electricity generation in the country.52 The expansion of electricity generation infrastruc-

ture is a pressing need in order to have a top-quality service and more competitive rates.

52 Secretariat of Energy, 2012-2026 Electricity Market Prospective.

Others

Asia

Europe

USA

0

10

20

30

40

50

60

70

80

90

100

2007 2008 2009 2010 20110.0

0.5

1.0

1.5

2012 2012

2.0

2.5

3.0

Others

Africa

Latin America

Middle East

20112010200920082007

Total

Training

Scholarships

2006

-10%

-5%

0%

5%

10%

15%

20%

25%

0

1,000,000,000

2004 2005 2006 2007 2008 2009 2010 2011

2,000,000,000

3,000,000,000

4,000,000,000

5,000,000,000

6,000,000,000


Peso

s

201220112010200920082007

104%

10%

101%

11%

86%

17%

77%

28%

72%

25%

50%

11%


0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

10,000,000

0

20

40

60

80

100

120

140

160

180

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011


Num

ber

of w

ells


Annual Production

2000

3000

4000

5000

6000

7000

8000

9000

10000

11000

12000

20112010200920082007200620052004200320022001


Peta

joul

es

Production


0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2010-20112000-20091990-19991980-19891970-19791960-1969


201220112010200920082007

33,157

17,530

32,244

16,638

31,691

24,428

34,094

23,555

28,000

21,98716,839

14,248

2,5916,103

10,5397,263

15,606 15,627

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

0

2000

4000

6000

8000

10000

12000

14000



2026

2025

2024

2023

2022

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

12.9

%

13%

13%13

.8%

13.8

%

13.5

%

14.3

%

14.5

%

15.4

%

15.8

%17.9

%

17.1

%19.7

%21.2

%23.6

%26%

0

20

40

60

80

100

120

2011 2011 2013201020092008200720062005


Dol

lars


0

500

1000

2000

2018

2016

2014

2012

2010

2008

2006

2004

2002

2001

2017

2015

2013

2011

2009

2007

2005

2003

1500

2000

2500

3000

3500

GNL ImportsImports

0

50

100

150

200

250

300

201120102009200820072006200520042003200220012000

OECD

Mexico

U.S.

Great Britain

France

Chile

Norway

OECD


Mexico

U.S.

Great Britain

France

Chile

Norway

0

50

100

150

200

250

300

350

201120102009200820072006200520042003200220012000

Non-oil Revenues

OilRevenues

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

20122011201020092008200720062005200420032002

Photovoltaic

Nuclear-electrical

Geo-thermal

Eolic

Coal-fired

Dual

Thermo-electrical

Combined-cycle

Hydro-electrical

0

10

20

30

40

50

60

70

80



1 2 3 4 5

6 7 8 9 10

11 12 13 14 15

16 17 18 19


38

Graph 16. Projection on the reserve margin of the power generation capacity

Source: SecretarIat of energy, 2012-2026 electrIcIty market ProSPectIve.

Mexico is one of the few countries where electricity rates paid by the industries are higher than residen-

tial rates. The evolution of average residential and industrial rates in Mexico as well as other countries

can be seen in graphs 17 and 18. The power rate scheme controlled by the SHCP has favored cross-

subsidies where industries, for example businesses, pay most of the cost of bringing electricity to homes.

With the exception of residential consumers that are currently paying the “High Consumption Rate”, the

rest of Mexican homes have a subsidy of around 70% of its cost. Meanwhile, industries and businesses

pay an over-cost that ranges from 10% to 15%. That is to say, the micro-entrepreneur who owns a

convenience store, when paying power needed for the refrigerators with sodas and milk, is paying part

of the power cost of a young student in the wealthy Condesa suburb in Mexico City. This is one of the

most absurd aspects of Mexican power rates, which must be contemplated within the energy reform as

a consequence of the natural gas market’s conditions in the country.

Others

Asia

Europe

USA

0

10

20

30

40

50

60

70

80

90

100

2007 2008 2009 2010 20110.0

0.5

1.0

1.5

2012 2012

2.0

2.5

3.0

Others

Africa

Latin America

Middle East

20112010200920082007

Total

Training

Scholarships

2006

-10%

-5%

0%

5%

10%

15%

20%

25%

0

1,000,000,000

2004 2005 2006 2007 2008 2009 2010 2011

2,000,000,000

3,000,000,000

4,000,000,000

5,000,000,000

6,000,000,000


Peso

s

201220112010200920082007

104%

10%

101%

11%

86%

17%

77%

28%

72%

25%

50%

11%


0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

10,000,000

0

20

40

60

80

100

120

140

160

180

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011


Num

ber

of w

ells


Annual Production

2000

3000

4000

5000

6000

7000

8000

9000

10000

11000

12000

20112010200920082007200620052004200320022001


Peta

joul

es

Production


0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2010-20112000-20091990-19991980-19891970-19791960-1969


201220112010200920082007

33,157

17,530

32,244

16,638

31,691

24,428

34,094

23,555

28,000

21,98716,839

14,248

2,5916,103

10,5397,263

15,606 15,627

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

0

2000

4000

6000

8000

10000

12000

14000



2026

2025

2024

2023

2022

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

12.9

%

13%

13%13

.8%

13.8

%

13.5

%

14.3

%

14.5

%

15.4

%

15.8

%17.9

%

17.1

%19.7

%21.2

%23.6

%26%

0

20

40

60

80

100

120

2011 2011 2013201020092008200720062005


Dol

lars


0

500

1000

2000

2018

2016

2014

2012

2010

2008

2006

2004

2002

2001

2017

2015

2013

2011

2009

2007

2005

2003

1500

2000

2500

3000

3500

GNL ImportsImports

0

50

100

150

200

250

300

201120102009200820072006200520042003200220012000

OECD

Mexico

U.S.

Great Britain

France

Chile

Norway

OECD


Mexico

U.S.

Great Britain

France

Chile

Norway

0

50

100

150

200

250

300

350

201120102009200820072006200520042003200220012000

Non-oil Revenues

OilRevenues

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

20122011201020092008200720062005200420032002

Photovoltaic

Nuclear-electrical

Geo-thermal

Eolic

Coal-fired

Dual

Thermo-electrical

Combined-cycle

Hydro-electrical

0

10

20

30

40

50

60

70

80



1 2 3 4 5

6 7 8 9 10

11 12 13 14 15

16 17 18 19

39


Graph 17. Industrial power rates (dollars/MWh)

Source: InternatIonal energy agency (2012).

Graph 18. residential power rates (dollars/MWh)

Source: InternatIonal energy agency (2012)

Others

Asia

Europe

USA

0

10

20

30

40

50

60

70

80

90

100

2007 2008 2009 2010 20110.0

0.5

1.0

1.5

2012 2012

2.0

2.5

3.0

Others

Africa

Latin America

Middle East

20112010200920082007

Total

Training

Scholarships

2006

-10%

-5%

0%

5%

10%

15%

20%

25%

0

1,000,000,000

2004 2005 2006 2007 2008 2009 2010 2011

2,000,000,000

3,000,000,000

4,000,000,000

5,000,000,000

6,000,000,000


Peso

s

201220112010200920082007

104%

10%

101%

11%

86%

17%

77%

28%

72%

25%

50%

11%


0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

10,000,000

0

20

40

60

80

100

120

140

160

180

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011


Num

ber

of w

ells


Annual Production

2000

3000

4000

5000

6000

7000

8000

9000

10000

11000

12000

20112010200920082007200620052004200320022001


Peta

joul

es

Production


0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2010-20112000-20091990-19991980-19891970-19791960-1969


201220112010200920082007

33,157

17,530

32,244

16,638

31,691

24,428

34,094

23,555

28,000

21,98716,839

14,248

2,5916,103

10,5397,263

15,606 15,627

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

0

2000

4000

6000

8000

10000

12000

14000



2026

2025

2024

2023

2022

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

12.9

%

13%

13%13

.8%

13.8

%

13.5

%

14.3

%

14.5

%

15.4

%

15.8

%17.9

%

17.1

%19.7

%21.2

%23.6

%26%

0

20

40

60

80

100

120

2011 2011 2013201020092008200720062005


Dol

lars


0

500

1000

2000

2018

2016

2014

2012

2010

2008

2006

2004

2002

2001

2017

2015

2013

2011

2009

2007

2005

2003

1500

2000

2500

3000

3500

GNL ImportsImports

0

50

100

150

200

250

300

201120102009200820072006200520042003200220012000

OECD

Mexico

U.S.

Great Britain

France

Chile

Norway

OECD


Mexico

U.S.

Great Britain

France

Chile

Norway

0

50

100

150

200

250

300

350

201120102009200820072006200520042003200220012000

Non-oil Revenues

OilRevenues

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

20122011201020092008200720062005200420032002

Photovoltaic

Nuclear-electrical

Geo-thermal

Eolic

Coal-fired

Dual

Thermo-electrical

Combined-cycle

Hydro-electrical

0

10

20

30

40

50

60

70

80



1 2 3 4 5

6 7 8 9 10

11 12 13 14 15

16 17 18 19

Others

Asia

Europe

USA

0

10

20

30

40

50

60

70

80

90

100

2007 2008 2009 2010 20110.0

0.5

1.0

1.5

2012 2012

2.0

2.5

3.0

Others

Africa

Latin America

Middle East

20112010200920082007

Total

Training

Scholarships

2006

-10%

-5%

0%

5%

10%

15%

20%

25%

0

1,000,000,000

2004 2005 2006 2007 2008 2009 2010 2011

2,000,000,000

3,000,000,000

4,000,000,000

5,000,000,000

6,000,000,000


Peso

s

201220112010200920082007

104%

10%

101%

11%

86%

17%

77%

28%

72%

25%

50%

11%


0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

10,000,000

0

20

40

60

80

100

120

140

160

180

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011


Num

ber

of w

ells


Annual Production

2000

3000

4000

5000

6000

7000

8000

9000

10000

11000

12000

20112010200920082007200620052004200320022001


Peta

joul

es

Production


0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2010-20112000-20091990-19991980-19891970-19791960-1969


201220112010200920082007

33,157

17,530

32,244

16,638

31,691

24,428

34,094

23,555

28,000

21,98716,839

14,248

2,5916,103

10,5397,263

15,606 15,627

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

0

2000

4000

6000

8000

10000

12000

14000



2026

2025

2024

2023

2022

2021

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

12.9

%

13%

13%13

.8%

13.8

%

13.5

%

14.3

%

14.5

%

15.4

%

15.8

%17.9

%

17.1

%19.7

%21.2

%23.6

%26%

0

20

40

60

80

100

120

2011 2011 2013201020092008200720062005


Dol

lars


0

500

1000

2000

2018

2016

2014

2012

2010

2008

2006

2004

2002

2001

2017

2015

2013

2011

2009

2007

2005

2003

1500

2000

2500

3000

3500

GNL ImportsImports

0

50

100

150

200

250

300

201120102009200820072006200520042003200220012000

OECD

Mexico

U.S.

Great Britain

France

Chile

Norway

OECD


Mexico

U.S.

Great Britain

France

Chile

Norway

0

50

100

150

200

250

300

350

201120102009200820072006200520042003200220012000

Non-oil Revenues

OilRevenues

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

20122011201020092008200720062005200420032002

Photovoltaic

Nuclear-electrical

Geo-thermal

Eolic

Coal-fired

Dual

Thermo-electrical

Combined-cycle

Hydro-electrical

0

10

20

30

40

50

60

70

80



1 2 3 4 5

6 7 8 9 10

11 12 13 14 15

16 17 18 19


40

3.5 EMErGiNG PubLiC POLiCiES ON rENEWAbLE ENErGiES

Due to the fragility of Mexico on the face of climate change, its energy transition is a vital goal. On one

hand, power generation is one of the most important parts of greenhouse gas emissions (GGE) given

that it contributes to 60% of them53. On the other hand, the General Law on Climate Change (GLCC))

has put a deadline to generate 35% of electricity with non-fossil fuels by 2024, as well as the goal to

reduce GCE by 30% in 2020.54Likewise, the Law for the Better Use of Renewable Energies and Fi-

nancing for the Energy Transition considers these activities as public utilities, with the aim of reducing

dependence of hydrocarbons as primary source of electric energy and gives the Energy Regulation

Commission a series of specific attributes for its promotion with regulatory instruments, which have

been issued in these years.

The inclusion of renewable energy in Mexico has increased in the last couple of years, but not quite

enough. This is due to an inconsistent investment in the sector; in 2010, Mexico had the second high-

est growth rate in investments on renewable energies worldwide, which was 548%.55 However, when

taking the 2007-2012 years into account, Mexico is not ranked within the top ten places regarding the

investment growth in this kind of energies.56 The lack of capitalization of the sector is reflected in a slow

advance on the goals set by the federal government. Regarding the percentage of effective capacity

through renewable energy, the Secretariat of Energy reported that biomass and biogas were the only

elements that actually were met in the 2012 goals, while in the percentage of power generation through

renewable energy, the 2012 goal was only met with mini hydroelectric, biomass and biogas.57 It is clear

that in order to boost Mexico’s potential as a producer of renewable energy, a strategy that enhances its

use should be put in place.

The development of renewable energy in Mexico, though slow, is going the right way. Nevertheless, for

a country that is among the 20 most attractive in renewable energy’s investment, a less than 1% par-

ticipation in the total amount of worldwide investment is not enough.58 In order to increase it, the legal

security and financial schemes have to be ensured, in addition to promoting potential benefits for using

renewable resources.

Since it’s a pragmatic tool, the current administration’s National Strategy of Climate Change does not go

into details regarding the series of rules needed to generate a favorable environment. Finally, this strat-

egy doesn’t put on the table the possibility of boosting the development of renewable energies through



55 Renewable Energy Policy Network for the 21st Century, Renewables 2012. Global Status Report.

56 Ibid.

57 Secretariat of Energy, Report on the participation of renewable energy in Mexico’s power generation as of 31 December 2012.

58 Ernst & Young, Renewable Energy Country Attractiveness Indices, number 36, February 2013.

41


a scheme of carbon taxes, a cap and trade scheme or a hybrid one that may provide simultaneous cer-

tainty regarding the amount to restrict and the price on carbon emissions.

Definitely, the “biological and economic clock” of Mexico indicates that it’s time to elaborate public poli-

cies to diversify the composition of the country’s energy matrix.


42

APPENDIx:

Source: 2012-2026 crude oIl outlook, SecretarIat of energy

Oil Export’s Destination per Country(ThOuSAND Of bArrELS PEr DAy)

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Total 1,603.7 1,755.7 1,705.1 1,843.9 1,870.3 1,817.1 1,792.7 1,686.2 1,403.4 1,222.1 1,360.5 1,337.9

united States 1,203.4 1,321.7 1,338.6 1,437.5 1,482.0 1,424.7 1,441.9 1,351.5 1,142.9 1,049.0 1,139.5 1,095.0

Spain 140.1 147.0 140.8 143.4 149.5 160.8 144.3 125.1 122.9 93.1 115.6 110.8

India 4.9 20.8 36.7 52.5 36.3 32.8 32.0 35.2 34.9 34.5 27.8 37.1

China 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 26.4 36.6

Canada 26.7 27.6 19.9 29.3 28.1 38.2 36.3 30.6 26.0 22.4 23.9 20.5

San José Agreement

41.6 44.6 27.2 32.1 29.0 30.5 36.7 35.5 20.4 9.4 15.3 17.8

Netherlands 1.4 0.0 2.7 0.0 0.0 0.0 1.9 14.4 8.8 10.6 3.7 7.4

Portugal 17.5 15.2 15.4 15.0 12.5 17.7 12.5 10.0 2.5 0.0 5.2 5.4

Netherlands Antilles

107.0 133.9 91.8 104.9 116.5 95.8 75.0 70.0 33.8 2.7 0.0 0.0

Israel 4.8 3.6 4.8 4.8 3.6 4.4 3.6 3.6 4.8 0.5 0.0 0.0

England 17.8 14.6 15.7 12.5 12.2 10.9 7.8 10.1 5.0 0.0 0.0 0.0

Other Countries

38.5 26.7 11.4 11.9 0.7 1.4 0.6 0.0 1.4 0.0 3.1 7.2

43


Graphic A1.

Project Mapping according to class, profitability and size

Source: natIonal hydrocarbon commISSIon (dt-3)

Deep-waters Gas Marine Inland Chicontepec


44

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