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Gas Shortage Intensifies in Mexico - 2003-02-13

Demand for electricity is growing in Mexico, but the state-owned oil company, known as Pemex, is reducing the amount of natural gas it can provide for electrical generation. The gas shortage problem has intensified the debate over proposals to allow more foreign private sector participation in energy production.

The director of Pemex, Raul Munoz Leos, says the state-owned petroleum company is falling behind in its ability to produce natural gas and that it will have to cut the amount of gas provided for electricity generation by more than 10 percent this year. He says Pemex lacks the technical infrastructure to exploit some of the crude oil found in deposits here in Mexico and that the less crude oil is drawn out, the less gas the company can produce. He says Mexico now faces a grave problem in providing sufficient gas to meet the demand from consumers as well as industries.

Government figures show that demand for natural gas is growing, even as Pemex production continues to fall. President Vicente Fox has proposed changes in the constitution that would allow some private companies to work in oil and gas exploration and production, but opposition parties have objected.

Mexico City-based energy expert David Shields says any proposed opening in the energy sector will likely stir sharp debate. "Mexico developed successfully as a monopoly several decades ago. Monopolies are not working so well in the global economy nowadays and so it is logical to seek private sector participation to open up the industry," he says. "However, this has caused a very severe divide in political opinions and there is still a lot of opposition to foreign companies coming in, especially to do exploration and production of natural gas, which is what the Fox government is proposing."

Mr. Shields says the inability of Pemex to exploit some gas deposits is partly a result of the government's failure, over many years, to reinvest sufficient funds in the company. He says opposition leaders fear the introduction of private investment would undermine the state-owned entity completely.

Mr. Shields suggests there may be other ways for Mexico to meet its need for electricity in spite of the gas deficit. "They will have to look at ways to make sure that electricity production, energy production, steel, petrochemicals and heavy industry in general are not just using gas, but getting back to the old style way of working, which is using oil derivatives and other energy alternatives to fire their electricity generation."

Since President Fox proposed opening the energy sector to more private participation last year, there has been little progress made on the issue in the Congress. Opposition leaders say Pemex officials need to provide a better explanation of the shortfall. The Fox government, however, continues to insist that a limited opening to some foreign companies is the best way to ensure Mexico will have sufficient energy for its growing economy and population.