Petroleum industry in Mexico

File:Pemexgasstation.jpg

A gas station in Puerto Vallarta

Cantarell

The petroleum industry in Mexico makes Mexico the ninth largest producer of oil in the world and the eleventh largest in terms of net exports. It is the third largest oil producer in the Western Hemisphere behind the United States and Canada. Mexico has the eighteenth largest oil reserves in the world, and fourth largest in the Western Hemisphere behind Venezuela, Canada, and the United States. However, like the United States and Canada, Mexico is not a member of the Organization of Petroleum Exporting Countries OPEC or any petroleum production related organizations, but since 1994 it is a member of the North American Free Trade Agreement.

The petroleum sector is crucial to the Mexican economy; while its oil production has fallen in recent years, oil revenues still generate over 10% of Mexico's export earnings. High taxes on the revenues of the state oil monopoly Pemex provide about a third of all the tax revenues collected by the Mexican government.

History

Development of the oil industry in Mexico before 1938

Petroleum was known in Mexico before the arrival of the Spaniards and used by the natives for incense and to repair canoes. In Mexico's colonial era (1521-1821), ranchers lost cattle to tar pits in the Gulf Coast Region, so it was considered more of a hazard than a valuable resource. Exploratory wells were first drilled in Mexico in 1869 by Mexican and some U.S. entrepreneurs.

Development of petroleum took place as Mexico's railway system was developed in the 1880s and 1890s, allowing petroleum to reach export markets; before that there was no internal market for Mexican petroleum and no way for petroleum to be easily exported. By 1901, commercial production of crude oil in Mexico had begun. California oil entrepreneur Edward L. Doheny opened the Ebano oil field along the Mexican Central Railway.

Edward L. Doheny, California oil entrepreneur in Mexico

Mexican President Porfirio Díaz encouraged a British entrepreneur, Weetman Pearson to develop further petroleum reserves, resulting in the highly successful Compañia Mexicana de Petróleo "El Águila", exploiting the Potrero del Llano reserves located near the central Gulf of Mexico coast town of Tuxpán. With the fall of the Díaz regime in 1911, Pearson no longer had to abide by promises to the ex-president not to sell British oil interests to the U.S. firms, so that Pearson began negotiating with Standard Oil. The deal did not go through and Pearson subsequently sold his shares "El Aguila" to Royal Dutch Shell, although "El Aguila" continued to have a majority of British investors. Mexico became an oil exporting nation in 1911, with the first shipment leaving the Gulf Coast port of Tampico on the same day that Porfirio Díaz went into exile.

Weetman Pearson, Lord Cowdray, British petroleum entrepreneur in Mexico

Legally, Article 27 of the constitution of 1917 granted the Mexican government the permanent and complete rights to all subsoil resources. This would cause conflicts between the Mexican government and foreign companies - especially U.S. oil companies - until the matter was resolved in the 1930s. In 1925, President Plutarco Elías Calles decreed that foreign oil companies must register their titles and limited their concessions to fifty years.

Oil production and exports from 1921-25 were at historic high levels. In 1921, production was in thousands of barrels of 42 gallons each 193,398, with exports at 172,268; 1922 production was 182,278 with exports of 180,866; 1923 production was 149,585, with exports of 135,607; 1924 production was 139,678, with exports of 129,700; and 1925 production was 115,515, with exports of 96,517. In 1926 production dropped below (in thousands of barrels) 100,000 and in 1942, net exports dropped below 10,000.

During the 1930s, Mexico was second behind the United States in petroleum output and led the world in oil exports. However, as a consequence of worldwide economic depression, the lack of new oil discoveries, increased taxation, political instability, and Venezuela's emergence as a more attractive source of petroleum, output during the early 1930s had fallen to just 20% of its 1921 level. Production began to recover with the 1932 discovery of the Poza Rica field near Veracruz, which would become Mexico's main source of petroleum for the next several decades.

1938 expropriation

Main article: Mexican oil expropriation

In 1935, all companies in the business of oil production in Mexico were foreign companies. Labor practices in these companies poorly benefited the workers since the companies were able to block the creation of labor unions through legal and illegal tactics. Despite legal opposition, the Confederation of Mexican Workers was created and proposed a project of general contracts for each oil company. A strike was planned to push towards an agreement but the matter went to the court instead. On December 18, the Arbitration Board declared in favor of the union and ordered the oil companies had to pay 26 million pesos in lost wages because of the strike.

Mexican President Lázaro Cárdenas intervened in the legal preceding by expropriating the oil industry and nationalized the petroleum industry, giving the Mexican government a monopoly in the exploration, production, refining, and distribution of oil and natural gas, and in the manufacture and sale of basic petrochemicals. Between 1938 and 1971, Mexico's oil output expanded at an average annual rate of 6%. In 1957, Mexico became a petroleum net importer after domestic demands exceeded domestic production. However, production rose to 177 million barrels (28.1×10^⁶ m³) by 1971 with the exploitation of new oil fields in the isthmus of Tehuantepec and natural gas reserves near the northeastern border city of Reynosa, but the gap between domestic demand and production continued to widen.

Post-nationalization

1973 witnessed Mexican oil production surpassing the peak of 190 million barrels (30×10^⁶ m³) achieved in the early 1920s. In 1974 Pemex announced petroleum discoveries in Veracruz, Baja California, Chiapas, and Tabasco. In 1976, President López Portillo announced that Mexico's proven hydrocarbon reserves had risen up to 11 billion barrels (1.7×10^⁹ m³). By 1983, that figure further rose to 72.5 billion barrels (11.53×10^⁹ m³). López Portillo increased Mexican petroleum production and used the value of the reserves as collateral for negotiating large international loans, most of which went to Pemex.

From 1977 to 1980, Pemex received $12.6 billion in international credit, representing 37% of Mexico's total foreign debt but nevertheless used the money to construct and operate offshore drilling platforms. Pemex further expanded by building onshore processing facilities, enlarging its refineries, and vastly improving its production capabilities. These investments led to an increase in petroleum output from 400 million barrels (64×10^⁶ m³) in 1977 to 1.1 billion barrels (170×10^⁶ m³) by 1982, the end of López Portillo's six-year term as president.

By 2007, Mexico had a net oil export of 1.756 million barrels per day (279.2×10^³ m³/d).

Oil production

File:Mexico Oil Production.png

Oil production in Mexico, 1980-2012 (red) and exports (black)

Mexico produces three grades of crude oil: heavy Maya-22 (accounting for more than half of the total production); light, low-sulfur Isthmus-34 (28% of production); and extra-light Olmeca-39 (20% of production). At the beginning of 2002 Mexico had the second largest proven oil reserves in the Western Hemisphere with 30.8 billion barrels (4.90×10^⁹ m³). However, according to Pemex, Mexico’s reserves/production ratio fell from 20 years in 2002 to 10 years in 2006, and Mexico had only 12.4 billion barrels (1.97×10^⁹ m³) of proven oil reserves left by 2007. Mexico stands ninth in the worldwide ranking of conventional oil reserves with only Venezuela higher in the Western Hemisphere (although Canada ranks higher if proven reserves of unconventional oil in oil sands are included).

Pemex is Mexico's state-owned petroleum company and the sole supplier of all commercial gasoline (petrol/diesel) stations in the country. Cantarell Field is the largest oil field in Mexico and one of the largest in the world producing. As of Jan 2001, Mexico has approximately 10.42 billion barrels (1.657×10^⁹ m³) in proven oil reserves. In November 2006, Pemex reported that Cantarell has produced 11.492 billion barrels (1.8271×10^⁹ m³) of oil. Several oil fields have also been discovered in the Chicontepec Basin and neighboring Golden Lane. The Chicontepec fields contains Mexico's largest, certified hydrocarbon reserve, totaling more than 19,000,000,000 barrels of oil equivalent (1.2×10¹¹ GJ) with original oil in place of over 139,000,000,000 barrels of oil equivalent (8.5×10¹¹ GJ); recovery is complicated by challenging, low recovery rate reservoirs, but is made more attractive due to the presence of light and super-light oil.

The "South Zone" for Pemex includes the states of Chiapas, Tabasco, Campeche, Yucatán, Quintana Roo and the southern portions of Guerreo, Oaxaca and Veracruz with exploration beginning in 1863 with Father Manuel Gil y Sainz's San Fernando Mine near Tepetitan Town, Tabasco,Dr. Simon Sarlat's well in 1883, and commercial production from the Capoacan and San Cristobal oil fields in 1905 and 1906 respectively. Fields discovered with associated salt diapirs in the Saline Basin, near Coatzacoalcos, include Tonala-El Burro (1928), El Plan (1929), Cinco Presidentes (1946), Magallanes (1957) and Ogarrio (1957). Fields producing from the Chiapas-Tabasco Mesozoic area around Villahermosa include Sitio Grande (1972), Cactus, and Antonio J. Bermudez (1958). Fields discovered with associated anticlines in the Macuspana Basin, between Villahermosa and Ciudad del Carmen, include Jose Colomo (1951), Chilapilla (1956) and Hormiguero.

In 2002, the Ku-Maloob-Zaap oil field was discovered offshore in the Bay of Campeche, 105 kilometers from Ciudad del Carmen. Pemex plans to drill 82 fields and install 17 oil platforms, as well as build an oil pipeline of 166 kilometers to transport the oil produced. By 2011, production is expected to reach 800 thousand barrels per day (130×10^³ m³/d) and 282 million cubic feet (8.0×10^⁶ m³) of natural gas.

In an interview on the oil news website, oilcast.com, in November 2005, an anonymous Pemex employee revealed the company's inability to increase production, stating that the country is at Hubbert's Peak. The individual interviewed believed export levels could not be recovered once peak had passed, as the size of current fields that have been discovered or are coming online represent a fraction of the size of the oil fields going into terminal decline.

Offshore platform in the Gulf of Mexico

Annual production has dropped or failed to increase each year since 2004. Furthermore, it has been reported the 2005-2006 daily oil production was down by approximately 500 thousand barrels per day (79×10^³ m³/d) on the previous year. Nevertheless, Mexico still produced approximately 2.98 million barrels (474×10^³ m³) of oil per day (2010 est.) ranking it seventh in the world in terms of total production.

Year	Oil Production		Rank	Percentile Change
	million barrels per day	thousand cubic meters per day
2003	3.59	571	5	N/A
2004	3.59	571	5	0.00%
2005	3.46	550	5	-3.62%
2006	3.42	544	6	-1.16%
2007	3.50	556		+2,3%
2009	3.00	477
2010 (est)	2.98	474	7	-0,1%
2011 (est)	2.5	400

See also

• Chart of exports and production of oil by nation
• Economy of Mexico
• Energy in Mexico
• Electricity sector in Mexico
• List of oil-producing states

Further Reading

• Brown, Jonathan C. Oil and Revolution in Mexico. Berkeley and Los Angeles: University of California Press 1993.
• Brown, Jonathan C. "Petroleum, Pre-1938," in Encyclopedia of Mexico, vol. 2. pp. 1076-1082. Chicago: Fitzroy and Dearborn 1997.
• Brown, Jonathan C. and Alan Knight, editors. The Mexican Petroleum Industry in the Twentieth Century. Austin: University of Texas Press 1992.
• Hall, Linda B. Oil, Banks, and Politics: The United States and Postrevolutionary Mexico, 1917-1924. Austin: University of Texas Press 1995.
• Meyer, Lorenzo, Mexico and The United States in the Oil Controversy, 1917-1942. Austin: University of Texas Press 1977.
• Philip, George D.E., Oil and Politics in Latin America: Nationalist Movements and State Oil Companies. Cambridge and New York: Cambridge University Press 1982.
• Randall, Laura. The Political Economy of Latin American Oil. New York: Praeger 1989.
• Randall, Laura. "Petroleum, 1938-1996," in Encyclopedia of Mexico, vol. 2, pp. 1082-1085. Chicago: Fitzroy and Dearborn 1997.
• Rippy, Merrill. Oil and the Mexican Revolution. Leiden: Brill 1972.
• Wirth, John D., ed. Latin American Oil Companies and the Politics of Energy. Lincoln: University of Nebraska Press 1985.

External links

• Mexico's crude oil production chart (1980-2004) - Data sourced from the US Department of Energy
• Energy Secretariat (SENER)
• Energy Regulatory Commission (CRE)
• Energy Savings National Commission (CONAE)