BajaNomad

Mexico takes economic gamble to keep fuel cheap

fulano - 5-30-2008 at 11:18 AM

Quote:

MEXICO CITY (Reuters) - A $19 billion fuel subsidy, meant to shield Mexicans from spiraling world oil prices, could swallow a chunk of Mexico's precious crude oil export windfall revenue this year, and may only delay an inflation spike.

The subsidy, which means Mexicans are paying $1.40 less for a gallon of gasoline than U.S. motorists, was trumpeted by President Felipe Calderon this week as one of a package of measures to curb surging inflation.

The Mexican government has long subsidized gasoline, along with diesel and cooking gas, but this year the program could cost four times as much as in 2007, after a leap in the cost of the gasoline Mexico imports to cover a refining shortfall.

Mexico, via state monopoly Pemex, is the world's No. 6 oil producer and a top supplier of crude oil to the United States.

But critics say the government is squandering profits from high crude prices just when it should be spending them on projects like roads, schools, refineries and oil platforms -- all things that would boost economic growth.

The money earmarked for fuel subsidies this year is more than what Mexico spends annually on education.

Wall Street analysts would also like to see Mexico reinvest more of its oil profits in exploration to reverse a decline in oil reserves and bolster sagging production. A dip in Mexico's oil exports is already putting pressure on the federal budget.

"The consumer's happiness today will come at the extraordinary price of lower proven oil reserves and lower oil production and fiscal income in the future," Goldman Sachs economist Paulo Leme wrote in a report this week.

gpm414 - 6-2-2008 at 04:15 PM

Interesting article. Makes me think about what it would mean to the "average" Mexican worker and family to pay the world market price for gas and propane. It would be a much higher percentage of their income than just a few months ago, and I would think, drastically affect their cost of living and survival. It looks to me that Calderon is doing the right thing for the people of Mexico, but the future seems very uncertain for most countries.

Just got a letter from my cousin who has a farm in Northern England. Diesel for their trucks and farm equipment is pushing $12 a gallon...ouch! They are really feeling the pinch. It may not be long before $4-$5 a gallon for fuel seems like a good price.

[Edited on 6-2-2008 by gpm414]

Udo - 6-2-2008 at 04:28 PM

I am approximating my timelines...
The last time Mexico had a fuel price increase was about 10 years ago. I remember that time because it was a joy to drive the Baja roads with almost no traffic.
At that time, the Mexican economy came to a virtual standstill, and was that way for about 2 years.
Many Mexican economists still remember that sting, and the PRI lost it's grip on the government. I don't think they want to chance another recession.

(I can already see the unending political threads that will follow!)

mtgoat666 - 6-2-2008 at 04:33 PM

Quote:
Originally posted by fulano
Quote:

MEXICO CITY (Reuters) - A $19 billion fuel subsidy, meant to shield Mexicans from spiraling world oil prices, could swallow a chunk of Mexico's precious crude oil export windfall revenue this year, and may only delay an inflation spike.

The subsidy, which means Mexicans are paying $1.40 less for a gallon of gasoline than U.S. motorists, was trumpeted by President Felipe Calderon this week as one of a package of measures to curb surging inflation.

The Mexican government has long subsidized gasoline, along with diesel and cooking gas, but this year the program could cost four times as much as in 2007, after a leap in the cost of the gasoline Mexico imports to cover a refining shortfall.

Mexico, via state monopoly Pemex, is the world's No. 6 oil producer and a top supplier of crude oil to the United States.

But critics say the government is squandering profits from high crude prices just when it should be spending them on projects like roads, schools, refineries and oil platforms -- all things that would boost economic growth.

The money earmarked for fuel subsidies this year is more than what Mexico spends annually on education.

Wall Street analysts would also like to see Mexico reinvest more of its oil profits in exploration to reverse a decline in oil reserves and bolster sagging production. A dip in Mexico's oil exports is already putting pressure on the federal budget.

"The consumer's happiness today will come at the extraordinary price of lower proven oil reserves and lower oil production and fiscal income in the future," Goldman Sachs economist Paulo Leme wrote in a report this week.


Lost in translation? I don't think it is really a "subsidy" -- Mexico (via Pemex) just chooses to make less profit than they could if selling per world market prices. Pemex controls Mexican crude and chooses to sell refined crude inside Mexico at less than world market rate. Many other oil-rich countries do the same.

bajalou - 6-2-2008 at 05:38 PM

I've lived full time in Mexico for about 13 years and the price gasoline has risen almost every month of that time. It's usually a small amount - 1-5 centavos a month. It's gone from being real cheap to what it is today. Slow but sure have been the increases

DENNIS - 6-2-2008 at 05:41 PM

Quote:
Originally posted by bajalou
I've lived full time in Mexico for about 13 years and the price gasoline has risen almost every month of that time.


Right. Propane as well.

Osprey - 6-2-2008 at 06:12 PM

Right. I guess you're saying the government/Pemex has increased the price in tiny increments so as not to cause catastophic inflation -- chosen to appease everyone while not leaving enough in the pot to explore/refine for the future. Just like some other big country I can think of. At the end of the long, long day it boils down to "what's good for the goose is not necessarily good for the gooser" -- bandaids are for cuts and abrasions, not for compound fractures. I think the kids of the kids around here will be eating dirt, not beans. Sure wish I knew more about this kind of thing so I could count myself qualified to speak about it with conviction.

CaboRon - 6-2-2008 at 06:57 PM

I appreciate the reasonable gas prices ...

CaboRon

flyfishinPam - 6-2-2008 at 07:50 PM

Pemex belongs to the nation it belongs to the people nobodys subsiduzing what already belongs to them no matter what wall street thinks. This is wall street propaganda to privatize pemex and I bet the peoole won't let it happen.

bancoduo - 6-2-2008 at 08:10 PM

Quote:
Originally posted by flyfishinPam
Pemex belongs to the nation it belongs to the people nobodys subsiduzing what already belongs to them no matter what wall street thinks. This is wall street propaganda to privatize pemex and I bet the peoole won't let it happen.
Right on.

fulano - 6-2-2008 at 09:08 PM

Quote:
Originally posted by mtgoat666
Lost in translation? I don't think it is really a "subsidy" -- Mexico (via Pemex) just chooses to make less profit than they could if selling per world market prices. Pemex controls Mexican crude and chooses to sell refined crude inside Mexico at less than world market rate. Many other oil-rich countries do the same.


No. Mexico buys 40% of its gasoline from the US. To put it in perspective, the US has about 300 million people and about 150 operating refineries. Mexico has about 100 million people and only 6 refineries -- for the entire country. Mexico sells almost all the crude it pumps to the US. The US sends PEMEX a check for the crude. PEMEX buys most of the gasoline it sells from the US. When PEMEX buys the gasoline, it sends the US a check. Right now, PEMEX is selling gasoline in Mexico for less than it is paying for it.

It's a subsidy.

http://www.reuters.com/article/sphereNews/idUSN2944639820080...

CaboRon - 6-3-2008 at 06:36 AM

The solution is for Mexico to bite the bullet and build a dozen refineries and start exporting gas to the US.
It would take an immense effort by Pemax , on a par with the Manhatten project in scope.
They, of course, have to enlist outside investment in order to search and develope new fields and platforms.
I know, it sounds simplestic .... and with the current mindset .... it will never happen.

CaboRon

Bruce R Leech - 6-3-2008 at 06:50 AM

Quote:
Originally posted by udowinkler

The last time Mexico had a fuel price increase was about 10 years ago.



where have you been the last 10 years? check Baja cactus's past threads to see how many price increases there have been.:lol:

DENNIS - 6-3-2008 at 07:51 AM

Quote:
Originally posted by CaboRon
The solution is for Mexico to bite the bullet and build a dozen refineries and start exporting gas to the US.
It would take an immense effort by Pemax


Actually, the supreme effort would be to quit using Pemex income to support a country without an efficient tax base and reinvest in oil technology. And, of course, the politicians would have to keep their grubbly little thieving fingers out of the piggy bank as well.

comitan - 6-3-2008 at 08:11 AM

DENNIS for President(of Mexico):yes::yes:

[Edited on 6-3-2008 by comitan]

Osprey - 6-3-2008 at 08:11 AM

Grubbly, Grubbly? Now you're pushing it Dennis. Somebody on the board is bound to report you for that. Not to worry. They won't be able to Wikipedia that one for awhile. I wish you could send your message to the whole Mexican Congress. Only 8 % of Mexicans pay taxes and since Pemex pays nearly 100 %, if they raised the price of gas, it would become a tax on the rich and poor alike but the spread would be more equitable than the current situation -- it has been widely reported in the news that many Pemex managers (at the highest levels) are the ones who were raping the storage facilities under cover of darkness -- stealing from themselves as it were so maybe even more explore/refine income possibilities would once again be lost in the system.

DENNIS - 6-3-2008 at 08:35 AM

I think I meant Grubby but, I'm warming to Grubbly. I make up words in Spanish so I may as well do it in English too.
Thanks for your kindness, Jorge. Most anyone else would have had a time with it.

fulano - 6-3-2008 at 08:48 AM

Quote:
Originally posted by CaboRon
The solution is for Mexico to bite the bullet and build a dozen refineries and start exporting gas to the US.
It would take an immense effort by Pemax , on a par with the Manhatten project in scope.
They, of course, have to enlist outside investment in order to search and develope new fields and platforms.
I know, it sounds simplestic .... and with the current mindset .... it will never happen.

CaboRon


Mexico's Constitution bans foreign companies from investing in or profiting from the nation's oil. All the oil was nationalized by Card##as in 1938 and it is a strong source of national pride. Right now, foreign investment in Mexico's oil is off-the-table. Mexico has about 10-years worth of oil reserves left and it takes 10 years to go from an exploratory well to a producing oil field. All of Mexico's new oil fields are in deep water. That takes beaucoup dinero to bring on line.

Every centavo of PEMEX's profits get sucked up to run the government. There's nothing there to spend on exploration and development.

I think Mexico is already dead. It just doesn't stink yet.

CaboRon - 6-3-2008 at 10:10 AM

Quote:
Originally posted by fulano
Quote:
Originally posted by CaboRon
The solution is for Mexico to bite the bullet and build a dozen refineries and start exporting gas to the US.
It would take an immense effort by Pemax , on a par with the Manhatten project in scope.
They, of course, have to enlist outside investment in order to search and develope new fields and platforms.
I know, it sounds simplestic .... and with the current mindset .... it will never happen.


CaboRon


Mexico's Constitution bans foreign companies from investing in or profiting from the nation's oil. All the oil was nationalized by Card##as in 1938 and it is a strong source of national pride. Right now, foreign investment in Mexico's oil is off-the-table. Mexico has about 10-years worth of oil reserves left and it takes 10 years to go from an exploratory well to a producing oil field. All of Mexico's new oil fields are in deep water. That takes beaucoup dinero to bring on line.

Every centavo of PEMEX's profits get sucked up to run the government. There's nothing there to spend on exploration and development.

I think Mexico is already dead. It just doesn't stink yet.


I suppose that after the nationalization of the oil fields that it would be humbling to go back to the companies you scre##d and ask them to invest in Pemax.
And since it's all about saving face, no matter the reality, once again this system works against itself at every level .
Just another simplistic observation .

http://www.petroleumworld.com/Ed032306.htm

CaboRon

edited to say that I would like to place my vote for Dennis .... as president of somthing. This is not a poliltical statement.



[Edited on 6-3-2008 by CaboRon]

DENNIS - 6-3-2008 at 01:01 PM

Quote:
Originally posted by CaboRon
I would like to place my vote for Dennis .... as president of somthing. This is not a poliltical statement.


Thanks Ron. I'm going to Sharky's to celebrate my hard earned victory.

DENNIS - 6-3-2008 at 05:36 PM

Quote:
Originally posted by CaboRon
Is Sharkey's kind of like Shut Up Franks here in TS ?



Don't really know, Ron but, I would guess yes if it's the only game in town. Sharky's has a good happy hour [4 of 'em] and good food. I still think this place could use a place like Blacky's in Newport Beach. Some here know what I'm talking about.

bajaguy - 6-3-2008 at 05:53 PM

Blackies.............ahhhhhhhh