The Blog

One More Reason to Expand Domestic Drilling

11:23 AM, Jul 29, 2008 • By BRIAN FAUGHNAN
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Mexico is our third-leading supplier of foreign oil, but Mexico's national oil company -- Pemex -- faces serious challenges. Pemex will be unable to produce from new deep-water fields without an infusion of private capital, and the Mexican constitution forbids private investment in the petroleum sector. With the Cantarell field in decline, Mexican oil production will fall off dramatically.

Mexican president Felipe Calderon has proposed a reform package to enable Pemex to contract with private companies. In contrast to the package proposed by former president Vicente Fox, this one seems to have a chance of passage. But the socialist opposition party has staged a series of non-binding referenda in parts of the country, and the results could chill the move for reform:

More than 80% of those who cast ballots Sunday in Mexico City opposed the plan, according to the official tally of the federal district released Monday. The results were even more lopsided outside the capital, where nine of Mexico's 31 states also participated. With about two-thirds of the ballots counted, more than 90% of those voters gave the president's proposal a thumbs down...

Orchestrated by the opposition Democratic Revolution Party, the so-called Citizen Consultation was the first of three public referendums to be held throughout Mexico over the next month to gauge public opinion on pending energy reforms.

The results have no official bearing on legislation being hashed out in Congress. But the left-leaning PRD is gambling that strong public opposition will force lawmakers to back off proposals to open portions of the state petroleum monopoly to private or foreign firms.

According to the head of Pemex, Mexico's production of oil will fall by about 1.2 million barrels per day by 2015 without this reform. The U.S. currently imports slightly less than that. There's no doubt that if Mexico's production tailed off so dramatically, we would bear the brunt of it. Suddenly canals might seem practical.