Low-Carbon Development for Mexico
duction could fall below 2.5 mbd by 2010, with a resulting large drop in oil exports and a consequent fall in public revenues. Mexico also recognizes the need to improve the efficiency of Pemex.2 Recent reforms in the oil and gas industry are intended to provide additional budgetary and financial flexibility to Pemex. Spending by Pemex, a decentralized federal agency, falls under the restrictions of the federal budget, and its financial obligations fall under public borrowing structures.3 Over the past two decades, a limited federal budget and constraints on borrowing have led to insufficient investment in the oil and gas sector in order to meet production targets and related product quality improvements. Pemex is currently the world’s most indebted oil company (total debt was $46.1 billion debt in 2007, and the ratio of debt to proven reserves was $3.1 dollars per barrel of oil equivalent) (figure 3.1). This high level of indebtedness has limited the company’s ability to raise financing in private capital markets. The relationship between investment in the oil sector and future energy production and earnings is recognized in Mexico. The problem is the fact that investments in the energy sector compete with pressing social programs, such as health, education, and poverty alleviation, which have relied on oil earnings to finance increases in budget allocations.
Figure 3.1 Pemex Debt and Earnings in Recent Years
50
earnings before interest, depreciation, and amortization
40
debt
60
$ billions
36
30 20 10 0 –10
2003
2004
2005 year
2006
2007
Source: Pemex 2008.
Sustaining and expanding natural gas production is critical to meeting Mexico’s energy demand. Gas demand in Mexico has been increasing over the past two decades, as the country expands the use of efficient and clean combined-cycle gas for power generation. Between 2000 and 2007, production of natural gas increased from 4,679 million cubic feet per day (mcfd) to 6,058 mcfd (figure 3.2). The majority of the increase in production has been attributable to the increase in nonassociated gas (gas produced independently of oil). However, the 29 percent increase in production between