Another useless bailout of Pemex

In recent years, Pemex has seen a decline in the number of operating oil wells. Crude oil production (including condensates) has fallen from 1.9 to 1.6 million barrels per day (mdbd) in just two years, despite being virtually the only profitable activity of the oil monopoly. Meanwhile, production of refined (petroleum) products in refineries, including gasoline, diesel, jet fuel, LP gas, and fuel oil, has increased in two years from 838,000 barrels per day (bd) to 935,000 bd. The problem is that the more Pemex refines, the more it loses. Nearly a quarter of what is produced in refineries is fuel oil, a highly polluting product that no one wants. To get rid of fuel oil, Pemex mixes it with high-quality light crude oil—adulterating it—for export to the United States, which lowers the sales price and reduces export revenues. Natural gas production has fallen in two years from 4.1 to 3.5 billion cubic feet per day. It is estimated that more than 25% of the gas produced is wasted, flared, or vented into the atmosphere, making it a potent greenhouse gas. Pemex's CO2e emissions have increased in just 24 months, from 30 to 32 million tons (quarterly data) over the same period. Pemex is responsible for 15% of Mexico's total CO2e emissions. Pemex's equity is negative, having fallen from (-)1.6 trillion pesos to (-)2 trillion pesos in three years, representing almost 6% of GDP. The oil monopoly is scandalously bankrupt. It is the most indebted oil company in the world: its financial debt is approximately $100 billion, and its debt to suppliers is $500 billion pesos. It is unknown how it will repay these debts.

In this context, another Pemex bailout program was presented a few days ago. It includes a federally guaranteed financing vehicle for $12 billion, transferred to Pemex as U.S. Treasury bonds to cover short-term debt. The government will continue providing capital to Pemex (they say) for only two more years. They assume that, in 2027, Pemex will be able to pay off its debt on its own, thanks to new projects supposedly with private participation. It's an agonizing way of acknowledging that, without private participation, Pemex is lost, and that it was a delusional whim to abort the "neoliberal" energy reform of 2013. A fund of 250 billion pesos is proposed to invest in exploration and production: half from development banks and the other half from the private sector. It is unclear how private companies will invest in this (as minority partners) without ("neoliberal") oil tenders or rounds of negotiations and without any legal certainty, especially after the destruction of the judiciary. The development bank (Banobras), instead of financing infrastructure and public services, is now going to squander money on Pemex. Mexico's valuable hydrocarbon reserves are unconventional (found in shale and ultra-deep waters). This contradicts the government's doctrine of prohibiting fracking and allowing full (majority) private investment in new fields. The announced program is unclear about how to finance the rehabilitation of refineries and petrochemical plants, or how to reduce gas flaring in the atmosphere. Nor is it clear how it will finance idyllic aspirations for cogeneration and lithium exploitation.

The worst part is that all of this turns out to be irrelevant given Pemex's terminal illness in the industrial transformation sector (refining and petrochemicals). Pemex's refineries process very heavy crude (that's what it is), with a lot of asphaltenes, metals, and sulfur. Pemex loses an average of $40 per barrel of refined crude, which, in total, absorbs the profits from crude oil sales and generates astronomical losses. Since less oil is produced and exported, and more is refined, Pemex loses more money. But that is the ideology of the 4T. We must remember the fallacious conceit of the 4T's top leader that it is "better" to sell orange juice (refined products) than oranges (oil). The problem is that the more "orange juice" (refined products) Pemex produces, the more money it loses (585 billion pesos in 2024). Energy sovereignty remains a mere figment of the imagination. In terms of gas, we have virtually no storage capacity, neither operational nor strategic. If Trump closes the valve, or if there's an accident or sabotage, the country is immediately paralyzed. Ninety percent of the gas used by CFE and the industry is imported and produced by fracking in the United States. Seventy percent of electricity is generated with gas. Will the fracking ban in Mexico be lifted? In short: the Gordian Knot is the refining liabilities. A rational company would write them off, selling or liquidating them. It's the only way to stop the bleeding. The new "bailout" eludes it. Bad news for Pemex, for the treasury, and for Mexico.