Emilio Lozoya, the CEO of Petróleos Mexicanos (Mexican Petroleums—Pemex), announced Wednesday that some of the company’s deep water exploration projects would be put on hold due to the declining prices of crude oil. In addition to scaling back on research projects, Lozoya said that job cuts would also be part of a spending cut of over $4.16 billion dollars approved by Pemex’s board of directors last week.
The price of oil has dropped drastically in the last year. Although crude prices averaged at $86 dollars a barrel in 2014, prices fell from a high of $100 dollars a barrel in June of last year to a mere $40 dollars in January of this year. This week prices were slightly up at $50.57 dollars a barrel, a price considered $25 dollars below the amount needed to make such deep water exploration projects profitable. “The exploration of some deep water deposits, especially the riskier ones and those that have not yet begun will be suspended,” said Lozoya.
Pemex, which is the seventh largest oil producer in the world, has been rocked by a number of changes over the past year. In August of 2014 the administration of President Enrique Peña Nieto succeeded in passing an energy reform bill to break-up the Pemex oil monopoly, awarding foreign companies oil contracts for the first time in Mexico since 1938. The oil giant has also had to deal with illegal tapping of its petrol and diesel pipelines, costing the company over $1 billion dollars.
This week's likely top stories: Haiti attempts to negotiate its way out of political deadlock; Cuba frees 53 political prisoners, holding up its end of the rapprochement deal with U.S.; Mexico cuts funding to PEMEX causing major oil sector layoffs; the U.S. Supreme court declines to review a challenge to Louisiana’s gay marriage ban; China and CELAC hammer out the details of increased economic partnership.
Haitian Lawmakers to Vote on Electoral Law to End Political Deadlock: On the eve of the five-year anniversary of Haiti’s devastating 2010 earthquake, Haitian President Michel Martelly reported on Sunday that he had come to an agreement with the opposition to hold long overdue elections by the end of 2015. Martelly announced that he’d reached a deal with 20 opposition politicians, although the leftist party Fanmi Lavalas (Lavalas Family), a major instigator of anti-government protests, was not involved in the deal. The agreement commits to organizing elections for two-thirds of the Senate and Chamber of Deputies by the end of the year, in addition to presidential elections. It also attempts to lend legitimacy to the political system by creating a nine-member electoral council made up of church, union and media representatives, but excluding political delegates. The current legislature’s mandate will elapse at midnight today, and if legislators do not approve the deal by then, President Martelly will rule by decree, a situation that opposition politicians claim that he has deliberately planned.
Cuba Frees 53 Political Prisoners: Cuba upheld its promise to release 53 political prisoners this weekend as part of December’s historic agreement with the United States to restore diplomatic relations between the two countries. Working with Cuban activists and human rights groups, the U.S. presented the Cuban government last spring with a list of prisoners to be released, and the Cuban government agreed to release 53 of those prisoners. Cuban dissidents said on Sunday that they only knew of 39 people who had been freed since December 17, but the U.S. Interests Section in Havana confirmed that all of the prisoners have now been released. The White House is expected to provide the names of the freed prisoners to Congress, which will then make the prisoners’ identities public.
Budget Cuts at PEMEX Lead to Major Layoffs: About 10,000 oil service workers were laid off at the end of last week as state-owned Petroleos Mexicanos (Mexican Petroleums—PEMEX) cancelled contracts due to budget cuts stemming from the global oil slump. Against a backdrop of a 10-year decrease in oil output at Pemex—the world’s ninth largest oil producer—and the price collapse of oil to nearly $46 per barrel, the Mexican Finance Ministry decided to withhold 50 billion pesos from Pemex in the interest of streamlining the management of public sector finances. PEMEX responded by terminating exploratory rig contracts, which may clear the way for foreign drillers to fill the gap in accordance with Mexico’s 2013 energy reform. Job losses could reach 50,000, according to Gonzalo Hernández of the Economic Development Chamber in Ciudad del Carmen, where many oil service companies are based.
U.S. Supreme Court Declines to Review Challenge to Gay Marriage Ban: The U.S. Supreme Court declined to review a challenge to Louisiana’s gay marriage ban on Monday, and took no action on four similar cases in Ohio, Michigan, Kentucky, and Tennessee—though it may act on those cases this week. The decision was not surprising, since a challenge to the ban is still being decided in the 5th U.S. Circuit Court of Appeals in New Orleans, and that court has not yet ruled. However, lawyers for the Louisiana plaintiffs opposed to the ban sought Supreme Court review because they said there is a “pressing need” for the court to definitively review the marriage bans as soon as possible. Gay marriage is now legal in 36 U.S. states, and if the Supreme Court strikes down one or more of bans in the 14 states that still prohibit gay marriage, all remaining bans could be overturned.
China and Latin America Hammer Out Increased Economic Partnership: At the close of last week’s first ministerial meeting of the Comunidad de Estados Latinoamericanos y Caribeños (Community of Latin American and Caribbean States—CELAC) and China, Chinese President Xi Jinping pledged on Thursday to invest $250 billion dollars in Latin America over the next five years. The framework for cooperation on energy, infrastructure, agriculture, manufacturing, and technological innovation is expected to include an increase of two-way trade to total up to $500 billion over 10 years—about twice its current level of $275 billion. Together, China and the countries represented by CELAC—which excludes the U.S. and Canada—account for one fifth of global land area, one third of world population and one eighth of the world’s total economic aggregate. Meanwhile, China is expected to surpass the European Union by 2016 to become the second-largest trading partner of most South American countries, after the United States.
This week’s likely top stories: President Juan Manuel Santos announces new ministers; Venezuela and Colombia crack down on smuggling; Codelco’s CEO has new plans for Chuquicamata Mine; Bolivia deports an Argentine accused of crimes against humanity; a fire at a Pemex refinery kills at least four people.
President Santos to announce new Cabinet: Colombian President Juan Manuel Santos is expected to announce new Cabinet ministers today as he launches his second term in office. Of the 16 Cabinet positions, Colombian Defense Minister Juan Carlos Pinzón, Minister of Finance Mauricio Cárdenas, and Minister of Foreign Relations María Ángela Holguín will retain their titles, while former Minister of the Interior Aurelio Iragorri will now be Minister of Agriculture, and Juan Fernando Cristo, former president of the Senate, will take Iragorri’s place at the ministry of the interior. At his inauguration address last week, Santos said that in addition to signing a peace agreement with the Fuerzas Armadas Revolucionarias de Colombia (Revolutionary Armed Forces of Colombia—FARC), he will focus on education and equality as pillars of his 2014-2018 presidential term.
Venezuela to shut its border with Colombia at night: Effective today, Venezuelan President Nicolás Maduro and Colombian President Juan Manuel Santos have agreed to close the Colombia-Venezuela border between the hours of 10 pm and 5 am each night in an effort to reduce smuggling. Heavily subsidized Venezuelan goods—such as food and fuel—can be sold at much higher prices in Colombia, causing tax losses for the state and profits for drug gangs and guerrilla groups. So far this year, the Venezuelan government has seized 21,000 tons of food and 40 million liters of fuel that were destined for Colombia. Maduro and Santos agreed to the measures on August 1 at a summit in Colombia.
New Codelco CEO says open-pit mine must go underground: Nelson Pizarro, the new CEO of Chile’s state-owned copper mining company Codelco, said on Sunday that Chile’s open-pit Chuquicamata Mine should be transformed into a subterranean mine to make it profitable. Pizarro, who was named Codelco’s CEO at the end of July and will officially take over on September 1, faces opposition from the miners’ unions, who say that the plan to revamp the mine will cause many to lose their jobs because many are not trained to work underground. Pizarro replied that “if the unions don’t do their part, there will be no future for Codelco.” Codelco is currently the largest producer of copper in the world.
Bolivia deports Argentine accused of Dirty War crimes: Jorge Horacio Páez Senestrari, a former infantry captain during Argentina’s 1976-1983 military dictatorship, has been deported back to Argentina after he was captured on Friday in Santa Cruz, Bolivia. Páez was accused of committing crimes against humanity in the Argentine province of Santa Cruz during the dictatorship. He had been temporarily released from prison in San Juan in 2011 to await his trial, but after he failed to attend his hearing, local police and Interpol issued an international alert for his arrest. Now that he has returned to Argentina, Páez’s trial is expected to resume.
Pemex refinery accident in Mexico: A fire that broke out on Friday at a Petróleos Mexicanos (Pemex) oil refinery in Ciudad Madero, Mexico, had killed at least four people as of Sunday night. Seven refinery workers were still hospitalized, according to Pemex officials. The latest explosion happened as workers performed maintenance on an empty petroleum coke tank, which was used to hold a solid carbon by-product of the oil refining process. On July 24, a different fire had broken out at the refinery, injuring 23 workers. Last week, the Mexican government passed secondary legislation to open its energy sector to private and foreign investment for the first time in over 70 years, in an effort to increase production and attract foreign expertise and technology.
Monday marked the conclusion of “Round Zero,” a yardstick in a process initiated as part of the Mexican energy reforms. During Round Zero, Petróleos Mexicanos (Pemex), the Mexican state oil company, sent regulators a list of which fields it wants to keep for its own development.
Pemex currently owns and operates all oil and gas assets in Mexico. After the reform, private companies will theoretically be able to partner with Pemex after the fields are auctioned to private investors.
While Pemex’s exact wish list was not released publically, the company proposed to keep 83 percent of proven and probable reserves (known as “2P”), and 31 percent of proven, probable and possible reserves (known as “3P”). The 3P fields are potential hydrocarbon resources. Much of the acreage that Pemex left aside contained deepwater and shale resources, where it does not have as much expertise and experience.
In declaring that it would like to hold on to most operating fields, Pemex is showing that it will keep its most profitable onshore and shallow-water fields, as well as the few deepwater fields where it has already drilled. As it will now operate as a profit-seeking business, it makes sense that Pemex would aim to hold on to its most productive assets.
This month, Mexico’s Congress is debating the long-anticipated reform of Pemex, the country’s state-owned oil company.
This reform comes at a critical moment for Mexico’s energy industry, as oil production has declined steadily since 2004, and Pemex will need to more than double its investment to reverse the trend. The latest energy reform legislation in Congress would ease the financial pressure facing Pemex (which currently supplies one-third of the government’s annual budget), and would allow for some form of foreign investment in Mexico’s energy development.
If the bill passes, however, the results will be neither immediate nor guaranteed.
Even if Mexico’s Congress scrapes together the necessary votes to pass the bill in the coming days, the energy legislation rollout is likely to take several years. Any constitutional reform must be approved by half of Mexico’s 31 state legislatures. This process will likely take several more months, and may not be complete until the middle of 2014. At this rate, a substantial increase in foreign investment cannot be expected before 2015 or even 2016.
Then, the all-important ley secundaria (secondary legislation) will be decided, with significant implications for the types and levels of investment that the reform will produce.
Mexican President Enrique Peña Nieto revealed a set of reforms to the country’s energy sector on Monday which would open Mexico's energy sector to foreign investors and allow private firms to access profit-sharing contracts with state-run oil monopoly Pemex. The reform package will be presented to the Congress this week and—if enacted—it will mark the largest private sector opening of Mexico’s energy sector since the industry was nationalized in 1938.
Mexico is the world's 10th-biggest producer of crude oil, and has the third largest oil reserves in Latin America after Venezuela and Brazil. For the past 75 years, the industry has been dominated by state oil firm Pemex, which supports about one third of the government’s income. As a result, the industry’s capacity to invest in new exploration projects has been limited and domestic production has dropped from nearly 3.4 million barrels per day in 2004 to 2.5 million barrels per day in 2012. If new projects cannot be developed, Mexico might become an energy importer by 2020.
The reform plan proposed this week calls to amend two key articles in the constitution that make oil, gas, petrochemicals and electricity the sole preserve of the state. Though private companies can currently be awarded service contracts within the oil industry, the reform goes further by allowing them to take part on the risks and profits of developing new fields, and offering permits in association with Pemex to refine, transport and store hydrocarbons and petrochemicals.
According to experts, the liberalization of the Mexican oil industry could double foreign investment in the country and improve growth. However, the plan has faced severe political opposition, and a survey revealed that 65 percent of Mexicans oppose private investment in the sector. Peña Nieto has stressed that “Pemex is neither being sold nor privatized,” and the industry will remain under government control. Though able to appease some of the critics, this has raised concerns among investors as the bill does not allow for production-sharing concessions—a scheme that is possible in Colombia and Brazil.
Watch an interview with COA Vice President Eric Farnsworth on the significance of the reforms for the Mexican economy.
Mexican President Enrique Peña Nieto’s plan to reform state-owned Petroléos Mexicanos (PEMEX) has attracted the attention of many analysts. Since President Lázaro Cárdenas nationalized the oil sector in 1938, no president has been able to push for reform to allow for foreign ownership of petroleum assets.
Peña Nieto sees allowing foreign investment to be critical to turning around PEMEX, which has suffered from declining production in recent years. PEMEX was producing 3.4 million barrels per day in 2003 and production slipped to 2.5 million barrels per day in 2012.
While the debate for energy reform continues, an oil auction for six blocks in the Chicontepec basin is set to take place on July 11, with multinational oil companies such as Repsol, Schlumberger and Halliburton set to make bids.
This is possible due to a 2008 reform that allows for limited private investment in the sector through incentive-based contracts. When it passed, then-President Felipé Calderón was quick to accompany the reform with a firm disclaimer: “I want to make clear that oil is and will continue to be exclusively Mexican property. PEMEX is not being privatized. Oil is a symbol of the nation’s sovereignty.”
Top stories this week are likely to include: Cubans re-elect President Raúl Castro in one-party elections; Argentine Foreign Minister Héctor Timerman travels to London; Paraguay investigates the death of Lino Oviedo; Argentina reacts to the IMF after being censured; Mexican authorities conclude rescue efforts after PEMEX explosion.
Parliamentary Elections Begin in Cuba: Cuba’s nearly 8.5 million voters went to the polls yesterday to elect 612 national assembly members and members of the country’s 15 provincial assemblies in the country’s one-party elections. Eighty-six year-old revolutionary leader Fidel Castro—who had not been seen in public since October—made a surprise appearance at the polls on Sunday to cast his vote in Havana’s El Vedado neighborhood. His brother, Cuban President Raúl Castro, was re-elected for a second five-year term—his last, if the president’s decision last year to introduce two term limits is upheld. "This parliament will be in place at an important time in the history of the revolution; though they likely will not have the power or diversity to positively affect the course of reforms or leadership changes," says Christopher Sabatini, Editor-in-Chief of Americas Quarterly.
Argentine Foreign Minister Declines to Meet with Falkland Islanders: With little over a month before Falkland/Malvinas Islanders vote in a March 10 referendum on their island's political status, Argentine Foreign Minister Héctor Timerman has arrived in London to make the case that the disputed islands belong to Argentina. Timerman will make a presentation at the Argentine Embassy in London to discredit the upcoming referendum, in which the islanders are expected to affirm that they are British. Timerman had originally planned to meet with British Foreign Secretary William Hague in a bilateral meeting, but he declined the invitation after Britain insisted that representatives of the island’s government also be present.
Paraguay Investigates Death of Presidential Candidate Lino Oviedo: Paraguayan President Federico Franco has declared three days of national mourning after third-party candidate Lino Oviedo was killed along with his pilot and bodyguard in a helicopter crash late on Saturday. The cause of the crash, which witnesses say was accompanied by an explosion, has not yet been determined, but authorities have called the death an accident. However, members of Oviedo’s Unión Nacional de Colorados Éticos (National Union of Ethical Citizens—UNACE) party have demanded an investigation into whether the politician was assassinated. Oviedo was a retired general who helped overthrow Paraguayan dictator General Alfredo Stroessner, and was also charged with organizing a failed coup in 1996 against former Paraguayan President Juan Carlos Wasmosy, for which Oviedo served time in prison.
Argentina's Next Steps After IMF Censure: Last Friday, Argentina became the first nation to be censured by the International Monetary Fund (IMF) for its widely-disputed inflation data, which the national statistics agency reports at 10.8 percent. Argentine Minister of the Economy Hernán Lorenzo reacted to the fund’s decision by saying that his country is being punished for “protecting national industry and jobs, financing itself without the markets, and saying ‘no’ to vulture funds.” According to the IMF, Argentina must address "inaccurate data" by Sept. 29, 2013 to avoid suspension. If the country fails to comply with the IMF by implementing remedial measures such as creation of a new consumer price index, Argentina faces further sanctions, which could include suspension of voting rights or expulsion.
Investigation of Thursday's Pemex Blast Continues: Mexican authorities will continue to investigate the cause of the blast that killed at least 36 workers at a Pemex office complex in Mexico City on Thursday. The death toll rose on Sunday as rescue workers found three more bodies over the weekend, but it now appears that rescuers are concluding their efforts to search for survivors—though one woman who worked as a secretary at the office remains missing. Mexican Attorney General Jesus Murillo Karam declined to say on Friday whether the explosion was an accident, due to negligence, or part of an attack, but he added that there should be more information available in the coming days.
A Brazilian government spokesperson announced yesterday that President Dilma Rousseff will visit Mexico in early 2013, likely in March, to build on “the very good impression” made by President Enrique Peña Nieto when the then-president elect visited Brasilia in September. The visit will focus on further reversing the tensions sparked over Brazil’s imposition of quotas in early 2012 as well as on sharing the Petrobras model, Brazil’s state oil company, with Mexican counterparts who are looking at how to reform the Mexican state oil company Pemex.
Plans are already underway for a follow-up visit where Pemex executives will travel to Brazil to learn first-hand how Petrobras functions.
Relations soured between Latin America’s two largest economies when Brazil, in response to an escalating trade deficit with Mexico, imposed import quotas on Mexican vehicles. Brazilian government officials have more recently hinted at the possibility of opening up discussions around the current automobile quotas.
Rousseff’s visit to Mexico may be largely symbolic, but the Mexican business community is awaiting concrete actions. Luis de la Calle, the former undersecretary of international business negotiations at the Mexican Ministry of Economy who actively negotiated the 1994 North American Free Trade Agreement said that it was “sensible to maintain a certain level of skepticism. At the end of the day, it comes down to interest and what is best for both Brazil and Mexico as a much more open trading relationship.”
In 2008, in the midst of the debate over oil reform, Mexican President Felipe Calderón promised to build a new refinery. Now, one year down the road, the refinery’s location and a $9 billion investment have finally been chosen in a process that was the victim of a slow-moving bureaucratic machine.
Whenever it had seemed that the final decision will at last be announced, some other delay appeared. The process to pick a spot, secure land and actually begin the construction has revealed many of the inefficiencies of the Mexican state, including the lack of a trustworthy land registry and the inability of both federal and state governments to move forward with their decisions.
Calderon's choice—or failure to make one—surprised quite a few. Instead of keeping the old Mexican tradition of vertical orders, he started a contest for the refinery. States who felt they could manage the facility were to send proposals and studies to Pemex (the state oil company), and technicians in the company would then decide for the president. After months of bitter debate in the media between governors and pundits, oil experts announced the winner, or rather a winner and a half, on April 14. The state of