Private Investment Key to Making Pemex Infrastructure Safe

Mexico Pemex
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Private investment in construction and maintenance of Mexican state oil company Pemex's infrastructure would reduce the number of fuel spills, gas pipeline explosions and other accidents, federal government and private sector sources said.

The company has requested a 130bn-peso (US$12bn) budget increase over the next three years to invest in maintenance of its transport infrastructure, according to Carlos Morales Gil, director of Pemex's upstream unit PEP.

However, the government does not have the funds to increase Pemex's budget and cannot agree on how best to allow more investment in the sector.

President Vicente Fox's recent proposal to reform energy sector legislation would allow the participation of private investors in construction and maintenance of oil and gas facilities, thus easing the burden on Pemex to invest.

However, opposition lawmakers who oppose private investment in the energy sector say the same thing could be achieved with a tax reform bill that would lessen the financial burden on Pemex and free up funds for oil and gas investments.

Despite saying the energy sector needs more investment, Fox recently vetoed a tax bill that would have reduced Pemex's tax burden, claiming the bill would deprive the federal government of necessary funds.

Congress is expected to review the president's revised proposal for Pemex's tax regime in the coming months, but while congress debates these different proposals, accidents at Pemex oil and gas installations are becoming more and more frequent.

During Fox's administration, there have been 231 crude oil, gas and fuel leaks due to lack of infrastructure maintenance, according to data from PEP.

The most recent accident reported by Pemex was a liquefied petroleum gas (LPG) leak on September 9 in Ciudad Mendoza, Veracruz state. There were no victims, but Pemex workers had to abandon the facilities.

On July 24, a 20-inch ethane pipeline from Pemex's Cangrejera petrochemicals complex in Veracruz state to La Ceiba municipality in Tabasco state burst.

On July 11, a 48-inch gas pipeline in Tabasco state ruptured, causing two deaths. Three days later a 36-inch oil pipeline exploded in Veracruz state, killing two people, and the 30-inch Nuevo Teapa-Poza Rica oil pipeline in Cuatotolapan municipality has burst twice in the same area since last December.

Federal environment authorities have said the weakest part of Pemex's oil infratructure is its pipelines. However, Pemex officials cannot check on them regularly because of lack of funding and even if they could, there is no money to repair or replace them.

In 2005, Pemex will spend around US$330mn on pipeline maintenance, but without government support or private investment this amount is expected to drop to just US$377mn in the period 2006-2008, according to company information.

Pipeline checking and maintenance costs from US$2,500-4,500 per km, Pemex says. The company has 61,000 km of pipelines transporting crude oil, fuel and natural gas.

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