IHS Global Insight Perspective | |
Significance | A director of the Mexican state oil monopoly PEMEX revealed this week that security problems in the northern state of Tamaulipas have forced the suspension of 150 million cubic feet per day (mmcf/d) of gas production, costing the company US$160,000 in lost revenue per day, and that no news has been received regarding its employees abducted in the state earlier this year. |
Implications | PEMEX's third-quarter results had already shown a 5.7% decrease in non-associated gas production from the Burgos Basin compared to the same period of last year, but no financial value was given. The costs of the partial shut-in of gas production come on top of the significant losses already experienced by the company as a result of fuel theft. |
Outlook | With little prospects for an immediate improvement in public security in Tamaulipas and other northern border states, the necessity for PEMEX and other companies to factor in security risks stemming from organised crime groups will remain high over the medium term. |
The Mexican state oil company PEMEX's director for exploration and production Carlos Morales Gil revealed in an interview with the Mexican daily Reforma earlier this week that the company has been forced to shut down gas production in parts of the Burgos Basin in the Mexican–U.S. border state of Tamaulipas, on account of insecurity in the area. Although Morales said that no installation is currently being controlled by organised crime, and that the support of the military has allowed the partial recovery of production, he conceded that in parts of the state it was not possible to guarantee the security of its personnel. Morales Gil said that at present the company was forfeiting a potential 150 million cubic feet per day (mmcf/d) of gas production, or around 1% of national output, resulting in US$160,000 in lost revenue per day. This compares with 200 mmcf/d in lost production prior to the military intervention. Morales Gil also revealed that five gunmen had been killed during an ambush attempt against military personnel guarding access to the PEMEX Arcos 45 well, and that no news had been heard regarding the PEMEX employees kidnapped in the state back in May (see Mexico: 14 May 2010: Mexican Oil Sector Concerned About Reported Increase in Kidnappings). According to earlier press reports, five PEMEX employees were abducted after refusing to heed a call from supposed members of the Zetas—a powerful and violent organised crime outfit made up mostly of former Mexican special forces deserters—to leave the area (see Mexico: 11 June 2010: Organised Criminals Reportedly Take Control of Mexican Gas Well). Reports at the time also claimed that organised criminals had taken control of the Gigante Uno natural gas liquids (NGL) well, and that the Argentine firm Tecpetrol had also reported that two of its workers had been kidnapped. PEMEX's president Juan José Suárez Coppel and Morales Gil, speaking at a congressional hearing back in June, had denied reports that installations had been seized, although they admitted that organised criminals had prevented access to areas in the north of the states of Tamaulipas and Nuevo León and that the army and navy had been asked for help.
The Zetas were earlier suspected of using false import licences to supply at least US$46-million-worth of oil in tankers to U.S. refineries over a two-year period, according to Mexican police. In October 2009 the U.S. attorney's office in Houston, Texas said that three U.S. citizens—the head of Scottish oil company Y Oil and Gas, Arnold Maldonado; a broker, Jonathan Dappen; and the president of Valley Fuels Ltd, Stephen Pechenick—had pleaded guilty in the previous fortnight to receiving and selling petroleum condensate stolen from PEMEX. Another oil company executive, the former head of Trammo Petroleum, pleaded guilty to involvement in the same scam back in May, and in August the U.S. customs agency handed over US$2.4 million to Mexico on behalf of the company. A further indication of the impact of the escalating drug war on the oil sector came earlier this month in figures published in an Associated Press report, which showed that a total of 10 PEMEX employees or subcontractors have been kidnapped in four states over the course of 2010, up from one in 2009 and two in 2008.
Deteriorating Public Security
Morales Gil's statement comes against the backdrop of a broader weakening of public security in the northern border state. The number of killings attributed to organised crime has shot up to 662 so far this year, compared to 49 in 2009 and 110 in 2008, according to an unofficial tally of crime-related murders compiled by Reforma. The stark increase in violence is widely blamed on the fight for territorial control between the Gulf Cartel and the Zetas. The Zetas had long worked as the Gulf Cartel's enforcement arm, but they broke the alliance with the cartel earlier this year, triggering a sharp increase in violence in the north-eastern regions. The state hit international media headlines when security forces in August found the bodies of 72 massacred migrants on a Tamaulipas ranch. As worryingly as the deteriorating public security situation, over the last few months Tamaulipas has also seen a multiplication of violence directed against political figures. In the most high-profile incident, a group of hitmen killed Rodolfo Torre Cantú, the gubernatorial candidate for the Institutional Revolutionary Party (PRI), on 28 June, mere days before state elections. This came on the back of the killing in May of the mayoral candidate for Valle Hermoso. The latest Tamaulipas politician to fall victim to violence was Marco Antonio Leal, the mayor of Hidalgo, who was assassinated in August.
Outlook and Implications
Prospects that public security in Tamaulipas will substantially improve over the medium term are subdued. Following the killing last week of Antonio Ezequiel Cárdenas, alias Tony Tormenta, one of the alleged leaders of the Gulf cartel, in Matamoros, Tamaulipas is bracing itself for another acceleration of violence. With the Gulf cartel weakened, the Zetas are expected to redouble their efforts to gain control over lucrative drug-trafficking routes currently controlled by the Gulf Cartel. This, in turn, might lead to an increase in the Zetas' wider business operations in the state, including extortion of the private sector.
PEMEX has long had to factor security risks into its operations. A series of attacks against PEMEX's pipeline network in 2007 attributed to the insurgent group Ejército Popular Revolucionario (EPR) and its long-running battle against fuel theft by ordinary criminals as well as drug gangs have drawn attention to the impossibility of guarding the whole of PEMEX's pipeline network. Improved detection of illegal pipeline taps has led to a reduction in the estimated total volume of stolen fuel this year compared to last, but with an estimated 1,267,569 barrels stolen in the first eight months of 2010, the economic losses for the company resulting from this activity are still significant. The actual suspension of hydrocarbons production by the state oil monopoly due to security concerns, however, is without precedent in the country's recent history. The insecurity experienced by the company, particularly in the states of Tamaulipas and Nuevo León, has economic consequences both for PEMEX and for the federal government, which continues to rely on the company's revenues to fund around a third of its budget. It is also a concern for service providers and other private oil companies operating in the Burgos Basin. Nonetheless it is important to place the risks in perspective. While Mexico's security situation has deteriorated there are no reports of production facilities being affected in other parts of the country, and with around 75% of the country's oil production coming from offshore areas there is a limit to the reach of Mexico's drug gangs.