An explosion at an oil facility in Veracruz on April 20 killed 32 people and injured over 130. The Petroquimica Mexicana de Vinilo facility is owned by Pemex, Mexico’s state oil company, but operated by Mexichem, according to a company statement. The plant is located in Veracruz, the southeastern Mexican state that includes the city of Coatzacoalcos, about 373 miles southeast of Mexico City.
CNN reported that the explosion “sent large plumes of dark smoke and toxic fumes across the region,” forcing surrounding areas to be evacuated. The company said in a statement that air quality “continues to be monitored in order to determine the existence of toxic substances that could endanger health, which continue to be ruled out.”
This is not the first explosion. In September 2012, an explosion occurred at a Pemex gas plant in Tamaulipas, a Mexican state in the north. The explosion killed 33 people. A year later, in January 2013, methane gas and solvent vapors set off an explosion at the company’s headquarters in Mexico City and killed 37 people. One of Pemex’s oil rigs in the Gulf of Mexico caught fire in 2015, and a fire at a Veracruz plant in February killed a worker.
Pemex, short for Petrleos Mexicanos, is plagued by financial problems. Owned by the Mexican government, Pemex reported losing $9.3 billion in the fourth quarter of last year. It lost $32 billion in total in 2015. According to the report, Pemex “faces a liquidity issue.”
There are a number of reasons for Pemex’s troubles. An article by OilPrice.com points out several. First, the company’s oil production is in decline and has been for over a decade. In the fourth quarter of 2015, output was 2.328 million barrels per day (mb/d) on average, a 3.5 percent drop from the fourth quarter of 2014. According to Bloomberg, Pemex has not recorded a profit since 2012, and it had over $87 billion in debt at the end of the third quarter of 2015.
Back in February, the Mexican government replaced the CEO and ordered Pemex to cut costs. Mexican President Enrique Pena Nieto said then that he gave “instructions to the new director to make the efficiency and profitability of all Pemex’s activities his top priority.” He also said it “will be necessary to adjust the cost structure, revise the spending program and strengthen the investment processes.”
As a state-owned oil company, Pemex is “Mexico’s state oil monopoly,” as Banderas News put it, and as such the company is “protected from competition in Mexico.” In fact, Pemex has a “legal monopoly on the exploration, processing and sale of petroleum,” the newspaper reported. And clearly, that is a real problem for Pemex. Or, as Forbes pointed out, Pemex’s money troubles have “largely been caused by successive Mexican governments” which treat the company as its “cash cow” and that has been “milked to death.”
Forbes cites other causes for Pemex’s financial woes, including being handicapped by poor management, a dysfunctional organization and not being given operational autonomy by the Mexican government. And all of the company’s “major investment decisions” are done by “its government-dominated board.” There is still one more cause that Forbes mentions, and that one is corruption, with Pemex staff likely tied to “kick-backs, side deals and outright theft over the years,” the magazine reported. Given the corruption that the Mexican government is known for, it is little wonder that a government-owned company is plagued with similar problems.
As its oil company struggles, Mexico has made commitments to tackle climate change. In 2012, the Mexican Congress unanimously voted for a General Law on Climate Change, which went into effect later that year — making Mexico the first developing country to pass a comprehensive climate change law. Some of the aims of the law are to set mandatory greenhouse gas emissions requirements, reduce fossil fuel subsidies and increase renewable electricity generation to 35 percent by 2024. Owning a national oil company does not seem to square with that law.
Image credit: Flickr/Matthew Rutledge