In terms of national identity, oil is, for better or for worse, in Mexico's genes. The mere suggestion of a sell-off provokes a cacophony of vehement public resistance that sends neoliberals scampering for cover. Consensus for privatization is not even on the horizon.
Simon Cahill, 200167
During the Echeverria administration (1970—1976), the “Generation of ’38” still remained influential. These engineers, technicians, and managers who answered the call to manage the newly formed Pemex during the Cardenas administration (1934—1940) felt that Mexican oil should be consumed domestically and provided at low cost to stimulate the economy.68
Under the influence of these men, between 1938 and 1973 Mexico nearly ceased exporting oil. Through the 1960s, Pemex continued to rely on fields its private forebears had discovered in the Golden Lane—the string of fields along Mexico’s east coast. Up until 1973, low oil prices on the world market provided little incentive to increase production capacity and export. Pemex management never considered the company to be in competition with foreign oil companies, so the high costs associated with meeting domestic energy demand were not viewed with concern.69
Two events caused Pemex to abandon its almost static post-Cardenas operational mode. The first was the first overall petroleum trade deficit registered by Pemex, as Mexico’s demand for oil exceeded production in 1970. The second event was the initial OPEC-induced oil price increase of 1973, which caused Mexico’s oil import bill to rise to $800 million a year.70
As a result of these events, Echeverria launched a $1.4 billion program to locate new oil reserves and thus ensure oil self-sufficiency. This effort resulted in the discovery of the massive Reforma field on the border between Tabasco and Chiapas. An even larger field was located in the Gulf of Campeche, a hundred miles off the Yucatan Peninsula. This field was named for Juan Cantarell, a fisherman who spotted oil slicks around his dinghy and reported them to Pemex.71
Echeverria’s oil exploration program was so successful that by 1974 Mexico was able to not only meet its domestic needs but to begin exporting oil. The following year Mexican oil production exceeded the record set by foreign firms in 1921. Since it appeared that Pemex had found sufficient oil, exploration was scaled back, as is indicated by the number of exploratory wells decreasing from 143 in 1972 to seventy-nine in 1976.72
The technicians managing Pemex were reluctant to publicize the new finds, feeling they would lead to an undesirable emphasis on exports. Echeverria apparently shared the same reservations
About exporting oil, noting in his last state of the nation address, “Exhaustive and irresponsible exploitation of our petroleum wealth, essential for the maintenance of Mexico’s independent development, is dangerous and unjustified.”73
President Lopez Portillo (1976—1982) threw caution to the winds and undertook a massive expansion of oil production and export in response to the domestic economic crisis and high prices on the international oil market. He appointed as Pemex’s director general Jorge Diaz Serrano, a firm believer in exploring for new fields and expanding Pemex at breakneck speed. Diaz Serrano made the sidelining of the “Generation of ’38” crystal clear in a 1977 speech:
Mexico has oil and Pemex can generate income sufficient to resolve current economic problems... It would be folly not to export as long as we have the ability to do so. A failure to export would make integral development more difficult and would trap our economy in a vicious cycle caused by insufficient financial resources.74
During the Lopez Portillo administration, Diaz Serrano created a virtual state within a state as he dealt directly with the president on financial matters. He became the second most important person in Mexico, traveling as if he were foreign minister, negotiating trade agreements as if he were commerce minister, and securing international loans as if he were finance minister. During his glory days, Diaz Serrano was frequently mentioned as a possible successor to Lopez Portillo.75
International bankers, who felt oil collateralized their loans, willingly financed not only petroleum development but also Lopez Portillo’s grandiose development schemes. The oil-induced boom produced enormous profits for Mexican entrepreneurs, including former politicians turned businessmen who contracted with the state. Politicians remaining in government exchanged contracts for commissions. Foreign corporations also shared in the bounty. In 1977, Brown & Root, a division of Halliburton, received a $500 million contract to organize engineering work, purchase production platforms, and build pipelines and shore-based facilities to service oilfields in the Gulf of Campeche. Little attention was paid to rampant corruption and mismanagement, since there appeared to be enough wealth not only to develop the country but also to line pockets.76
Increases in oil production exceeded even the ambitious goals set by the Lopez Portillo administration. Between 1977 and 1982, daily production increased from 0.953 million barrels to 2.242 million barrels. To pay for developing oil production facilities and other projects, exports soared from 0.153 million barrels a day to 1.105 million during the same period. In 1981, oil export earnings totaled $15 billion. Petroleum and derivatives constituted only 16.8 percent of Mexico’s exports by value in 1976, while by 1981 that figure had leaped to 74.3 percent. In 1981, Mexico became the world’s fourth largest oil producer. In his 1978 state of the nation address, the president declared, “For the first time in our history, we will have the opportunity to enjoy financial self-determination.”77
A few disquieting trends were almost lost in the chorus praising oil development. Given the amount of money invested, relatively few jobs were created in the highly capital-intensive oil industry. Much of the wealth was dissipated, since as oil-industry expert George Grayson noted, oil workers “demonstrated an unusual talent for enriching themselves and their organization from the national patrimony.” As had been the case with Venezuela and Nigeria, which had also undergone rapid oil-induced growth, imports flooded in and income distribution worsened. Inflation associated with the boom, as well as government neglect, undermined other exports. Between 1977 and 1981, manufactured goods declined from 43.3 percent to 14.5 percent of exports, and agricultural products similarly declined from 27.9 to 7.5 percent of exports.78
Well before the rest of Mexico awoke from its oil-induced stupor, Heberto Castillo, an engineer who had been jailed for his support of the 1968 student movement, emerged as Mexico’s foremost critic of rapid oil development. He presciently warned of reserves becoming exhausted within decades. Mexico, he observed, was becoming increasingly dependent on oil exports to the United States and on food imports from that country, which created vulnerability to U. S. political pressure. Castillo declared the decision to rapidly exploit and export oil was a capitulation to U. S. interests that resulted in Mexican natural resources being sold off cheaply for short-term benefit to the detriment of Mexico’s long-term needs. Given his numerous books and articles in the newsweekly Proceso, his views were widely disseminated, though little heeded.79
At the national level, Castillo’s was almost a lone voice questioning the course of energy development. At the local level, his solo voice was accompanied by a chorus of aggrieved peasants and fishermen. Pemex drilled wells, built roads, laid pipelines, constructed petrochemical complexes, dredged rivers, and filled lagoons at breakneck speed with little consideration for the environment. Contamination from this activity found its way onto fields and into wells, rivers, and coastal fishing grounds. Thus unlike the United States, where having oil on one’s land was a stroke of luck, for Tabasco peasants the presence of oil was a curse.80
Environmental damage was not confined to Tabasco. In June 1979, a high-pressure well in the Gulf of Campeche known as Ixtoc-1 blew out and caught fire. Oil spewed into the sea at the rate of 30,000 barrels a day—the worst peacetime oil spill ever. For 281 days, oil gushing into the Gulf contaminated not only the coast of Tabasco but also Texas beaches. It cost Pemex $50 million to extinguish the fire, not to mention the value of the lost oil. Castillo charged, “The accident is characteristic of a wrong-headed policy to produce as much oil as possible as quickly as possible, which is in U. S. rather than Mexican interests.”81
The year 1982 marked the end of the Golden Age of Mexican oil. After the 1982 debt crisis, oil was no longer viewed as the key to developing the economy—that task was assigned to the private sector. Rather, oil export revenues defrayed the costs of foreign debt service and government operating expenses. The amount of annual government investment in the oil industry declined from $9 billion in 1981 to $2—3 billion annually after the 1982 debt crisis. As manufactured exports increased, oil declined from 74.8 percent of exports in 1983 to 43.0 percent in 1987.82
When the question of privatizing Pemex arose, President Salinas (1988—1994) paid homage to Mexican nationalism, declaring: “The constitutional requirements will remain as they are. They have to do with our history, with our sense of being.” At the same time, Pemex relied heavily on U. S. suppliers of oil production equipment and exploration and drilling services. The United States also consumed most of Mexico’s oil exports. Much of the revenue from these exports never left the United States—it was simply transferred to U. S. banks to service the foreign debt. Historian Lorenzo Meyer commented: “Although the oil is formally ours, half of it goes out just to pay the foreign debt. What is the difference between the situation now and before March 1938?”83
The oil workers union typified the worst of Mexican trade unionism in that office holders became extremely wealthy and resorted to violence—including multiple murders—to maintain their positions. Rather than confront the power of the union, between 1981 and 1989 the government allowed the number of Pemex employees to increase from 122,000 to 172,900 even as exploration and production declined. In referring to oil worker head Joaquin Hernandez Galicia, Grayson declared, “The crude Machiavellian labour chief and his toadies gripped Pemex with a stranglehold that rivalled eastern Europe’s domination by Communist party bosses.”84
Salinas’s spectacular arrest of Hernandez Galicia and thirty-four other oil union leaders in January 1989 reduced union power and made possible a reduction in the number of oil workers. By 1992, Pemex employment had declined to 136,000. This produced substantial savings since oil workers enjoyed high wages and a veritable treasure of medical, educational, and housing benefits, as well as lucrative business opportunities. With Hernandez Galicia out of power, various costly provisions of the labor contract, such as hiring Pemex union members for all oil-related construction work, were repealed. In addition, for the first time prospective Pemex employees were forced to meet educational standards and pass aptitude tests. A younger generation of technically trained managers was brought in.85
The Zedillo (1994—2000) administration sought to increase production and to operate Pemex in a more efficient manner. Adrian Lajous—a British-educated economist whom Zedillo appointed to manage Pemex—declared that the company could best serve Mexico by being an efficient oil producer—not just a job producer. to increased investment in exploration, oil production increased from 3.07 million barrels a day in 1994 to 3.45 million in 2000. Zedillo was less successful in making Pemex an efficient producer. In 2000, Grayson observed that the company was burdened with “enclaves of corruption, a peso-hemorrhaging petrochemical division, an archaic tax regime, a tangle of red tape, and the huge expense of health, educational and recreational programs provided to its bloated work force.”86
During the Fox administration, production increased—a result of budgeting between $10 and $12 billion annually for oil and gas exploration and production. These investments paid off as production rose from 3.45 million barrels a day in 2000 to a record 3.89 million barrels a day in 2004.87
Despite having reached record production levels during the Fox administration, Mexico is in the same situation as the United States—it is running out of oil. This is not surprising since U. S. production, which began in the late nineteenth century, began its decline in 1970, as its oil fields became exhausted. Mexican oil development, which followed U. S. oil development by roughly thirty-five years, now faces a similar decline. Production started down from its peak in 2004, dropping well below 3.0 million barrels a day in 2009.88
At the end of the Fox administration, new discoveries were replacing only 10 percent of oil extraction. A 2008 estimate by independent examiners declared that Mexican reserves were only sufficient for 6.6 years of production.89
A possible replacement for Pemex’s declining fields is deep-water production in the Gulf of Mexico. Even if such production is feasible, it is a very costly, prolonged process to bring such fields to production. Little consideration has been paid to the possibility that Mexico has passed its
Oil production peak, and that it should focus not on revitalizing Pemex but on developing alternative
90
Energy sources.
Declining Mexican oil production is important for both Mexico and the United States. Not only is oil a major Mexican energy source but it finances roughly a third of government operations. As a major oil supplier Mexico is of strategic importance to the United States. Between 2005 and 2008, reflecting declining production and rising domestic demand, Mexico slipped from being the second most important U. S. oil supplier (behind Canada) to fourth largest (behind not only Canada but also Saudi Arabia and Venezuela). This is especially significant since, as Venezuela becomes less reliable as a supplier, declining Mexican production makes the United States more reliant on Middle Eastern and African oil.91
Another problem faced by Pemex is the government’s over-reliance on the company as a cash cow. In 2006, Pemex sales exceeded $100 billion while its tax burden was $79 billion. The resulting lack of operating capital forced the company to borrow in order to pay for exploration and construction of new facilities. Energy expert David Shields calculated the total Pemex debt, including large unfunded pension liabilities, at $85.2 billion. Since so much of its income leaves the company in the form of taxes, Pemex has not had sufficient capital to develop refineries. As a result, by 2008 Mexico was importing $12 billion worth of gasoline and $15 billion worth of petrochemicals annually. Due to a lack of funds for maintenance, many Pemex pipelines and other facilities have deteriorated, causing accidents and spills. In 2005, the 700 leaks in Pemex pipelines resulted in $100 million in damages. Pemex was responsible for 57 percent of Mexico’s environmental emergencies.92
For political reasons, the government has continued to subsidize the cost of gasoline and diesel— a boon to affluent auto owners. In 2008, this subsidy reached $19.2 billion, compared to the $440 million in food subsidies.93
A final cloud on Pemex’s horizon is its bloated work force. Each Pemex worker produces only eighty-seven barrels of oil a day, compared to 195 for Venezuela’s state-owned oil company and 300 for the private Royal Dutch Shell. In addition, theft of gasoline is estimated to cost Pemex more than $1 billion a year. As a result of its high personnel costs, Pemex transfers less wealth to the rest of society.94
World History
