BY MARIFELI PEREZ-STABLE
AND CHRISTIAN GOMEZ
Latin America Advisor
WASHINGTON, DC — On January 3, crude oil futures broke $100 a barrel for the first time ever. While prices have cooled since then, falling below $90 a barrel on January 16, worldwide demand for oil shows no signs of abating.
Although high oil prices have led to soaring government revenues for the main oil-producing countries in Latin America, continued high prices will affect each country differently. The main factor is the behavior of national oil companies. Mexico will not stand to take advantage of the boom in oil prices. Increased oil revenues, which represent 35 percent of public spending, helped Mexico grow 3.5 percent in 2007, the highest rate since 1989. Nevertheless, Pemex, the state oil monopoly, is in dire financial and technological straits. Production is declining and may have already peaked, due to a lack of investment and exploration. Some analysts predict that Mexico might become a net oil importer in 10 years. Opening up the oil sector to foreign companies requires a change in the Constitution—a daunting political fight on the immediate horizon for President Felipe Calderon.
PDVSA: FALLING PRODUCTION
Despite claims to the contrary, Venezuela's PDVSA has also seen a fall in output. On January 7, El Universal reported that in 2007 oil production was 680,000 barrels per day (bpd) lower than the goal set by PDVSA's 2012 strategic plan, and 430,000 bpd lower than the 2007 national budget estimate. High oil prices have fueled President Hugo Chavez's domestic and international spending sprees, but increased spending will become unsustainable should prices fall, as no significant new oil reserves have been discovered. The likelihood of such discoveries has declined as Chavez has nationalized projects owned by foreign oil companies. While increased oil revenues led to 8.4 percent growth last year, inflation was 22.5 percent, the highest in the region.
Pemex and PDVSA might serve to learn from Brazil's Petrobras, which recently set a daily production record of just over 2 million barrels. Two reasons explain Petrobras' higher oil output. In 1997, Petrobras opened exploration and production to competition from outside companies. Since 2000, it has sold shares in the New York and Sao Paulo stock markets. Today, about 60 percent of total equity belongs to outside shareholders. The company has developed technological expertise in deepwater drilling. The Tupi deepwater field, discovered in November, is estimated to hold between five and eight billion barrels, representing the world's biggest oil find in the last eight years.
TALK IS NOT ENOUGH
On January 14, Calderon, Chavez, and Brazilian President Luiz Inacio Lula da Silva met in Guatemala City at the inauguration of Guatemalan President Alvaro Colom. "One day, oil is going to run out," said Chavez. "We were talking ... looking for a way to become partners, to form an alliance ... to create new ways of cooperating to increase reserves." Chavez's moment of prescience aside, cooperation will not be enough to weather a potential fiscal crisis—with implications for the regional economy—should prices fall without needed reforms in Mexico and Venezuela.
Marifeli Pérez-Stable is Vice President for Democratic Governance at the Inter-American Dialogue. Christian Gómez is a Program Assistant at the Dialogue. Republished with permission from the Inter-American Dialogue's daily Latin America Advisor newsletter.