Economics: Pemex and the 2021 Economy

MEXICO - Report 28 Sep 2020 by Mauricio González and Francisco González

The Pemex that for many decades contributed massively to government coffers and was one of the country’s major sources of foreign currency inflows is no longer. With its 2021 budget package the government of Andrés Manuel López Obrador has admitted as much.

Despite the Federal Government’s incessant claims of having Pemex’s back, its 2021 budget proposal drops the ball once again, offering not a word of what additional measures, if any, it may be considering to help revive the national oil company. It does contemplate 44.87 billion pesos in Pemex net debt, even as the company’s financial debt reached an unprecedented high in the second quarter of 2020.

There had long been an obvious correlation between Pemex’s earlier trade surpluses and the price of Mexico’s crude export mix, but that relationship changed five years ago. Even while the MME was continuing to firm, Pemex began consistently posting trade deficits. And there is no reason to expect the company will begin reporting major surpluses in the near future.

Pemex’s recent operating and financial situations have become so precarious that the company is unlikely to make any contribution to public finance or foreign currency inflows. Instead we can expect it will continue to act as a dead weight on both of those aspects of the Mexican economy.

Next year’s budget does offer the National Oil Company (NOC) more in the way of investment, but far too much of that boost is being squandered on AMLO’s pet projects (the 45.05 billion pesos assigned to Pemex’s the NOC’s natural gas, refining and petrochemicals unit will be used to finance construction of the Dos Bocas complex) and his focus on keeping oil produced in Mexico inside the country and refined domestically, a goal predicated on the effort to revive Mexico’s refinery network. Earlier this year Pemex had already reduced its physical investment budget, with the cuts mostly falling on the company’s exploration and production unit.

And even as the government is turning its back on the 2013 industry opening to private firms, the private production trend is the only success story in the sector.

Now read on...

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