Mexico's Starving Cash Cow

Dec 1, 2002

Pemex, Mexico's national energy company, earns billions of dollars a year. But that prodigious wealth is vanishing because the government has failed to feed its exploration budget.

Deep beneath the Burgos Basin, an arid, slipper-shaped coastal plain in northeastern Mexico, lie untold quantities of natural gas. Geologists are certain the basin holds at least two trillion cubic feet of gas. It could contain 20 times that.

This massive gasfield has become a critical element in Mexico's bid to meet growing demand for electricity, generated by gas-fired power stations. But the basin's deposits are expensive to extract. Years of haphazard drilling by the national oil company Petróleos Mexicanos, or Pemex, have damaged the gasfield. It skimmed off reserves that lay near the surface but ran into difficulties developing gas trapped deeper underground.

Mexico's ambitious goal of boosting gas production by 50% in four years hinges on Burgos, which has also become a battleground in an angry debate over whether foreign companies should have a role in Mexico's energy industry. "Burgos is a cornerstone of Mexico's...

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“The crisis has been a setback for reserve diversification."

Jan Dehn, Ashmore Investment Management