Does The Ayn Rand Novel End In Mexico?

Government “help” to business is just as disastrous as government persecution… the only way a government can be of service to national prosperity is by keeping its hands off.

– Ayn Rand (HT: Brainyquote)

Mexico, it seems, has encountered yet another self-inflicted problem. Their national oil company, PEMEX, has suffered for several years from declining marginal production. PEMEX enjoys a national monopoly on the extraction and refining of petroleum in Mexico and operates analogous to how regulated utilities operate in the United States.

This arrangement came into place in 1938 when an alliance between Mexican Trade Unions and the Mexican Government led to the nationalization of all American and European facilities operated by private corporations on Mexican soil. Now Mexico appears to want foreign investment. This occurs against the leafy green background of failing production from Mexico’s nationalized fields. The table below compares Mexican production in MBPD (Millions of barrels per day) to that achieved by North Sea and American resources.

NATION 2006 2007 2008
United States 8.33 8.46 8.51
Mexico 3.71 3.50 3.19
North Sea 4.77 4.53 4.31

This shows us that Mexican production has underperformed US fields but essentially been synonymous with the failing production in the North Sea. Competing theses exist to explain this outcome. Free-Marketeers would argue the state-controlled monopoly has been disincentivized and corrupt. Gregor MacDonald and others more prone to Conservationist/Environmentalist political actions, argue that PEMEX has passed Hubbert’s Peak and will never produce well from their bellwether fields again.

MacDonald argues Peak Oil based on production data from the dominant Mexican Cantarell Oil Field. His data demonstrates a significant downward monotonic trend in oil recovery from Cantarell from 2008 to the present day. Examination of MacDonald’s chart suggests that the production from Cantarell has halved in the last 21 months, declining in a negative exponential fashion. This would be consistent with prior observations from naturally exhausted sources of geological reserves.

However, PEMEX also shoots itself in the foot. Maintenance and R&D have not been performed. The equipment required to extract the oil from the ground has rapidly deteriorated in functional value. Diego Cevallos of ipsnews.com describes the corruption tax paid on all PEMEX operations.

Funds belonging to the Mexican state oil monopoly, Pemex, have paid in recent years for liposuction treatment for the wife of the company’s chief executive, a presidential candidate’s campaign, contracts with firms facing legal action, and the whims of trade union leaders who are not required to account for their expenses.

(HT Ispnews)

In response to the poor bottom-line performance and widespread allegations of cronyism and corruption, Mexican President Calderon has attempted to loosen the state controls on PEMEX, while simultaneously subjecting them to rigorous public audit. This would, in essence, make them operate like a well-regulated public firm would in either the US or Europe.

The Mexican Left is attempting to stymie this process. The Center For Analysis and Research offers the following critique of Calderon’s proposed denationalization.

“The proposal paves the way for possibilities for associations with private parties in a wide range of activities in the industry, without the parallel creation of precise mechanisms to guarantee transparency and accountability,” while giving the executive branch “excessive discretionality in running Pemex,” says Fundar, which is dedicated to promoting citizen participation and the rule of law.

Assuming that Calderon defeats the Mexican Left and that PEMEX is forced to live dangerously and authentically as an existential entity, we see a grand experiment unfold. If Gregor MacDonald is correct, and Mexico has squandered enough resource to supersede Hubbert’s Peak, we could get Batman, Spiderman and Capt. America down their drilling and it would fix nothing. Oil that does not exist cannot be forced out of the ground.

If, however, the modernization and transparent rendering of PEMEX’s accounting principles lead to a refurbished R&D and production base; which in turn ramps back up their production, than what would that say about the recent declines in production or state monopolies such as the one in Venezuela? Calderon, perhaps out of forced desperation, could end up making the type of radical foreign policy statement that Hugo Chavez would be impotent to repudiate.

It could be like the end of a ponderous and over-written Ayn Rand novel. The blithering, corrupt, amoral state is forced by its own vastly ineluctable kfuctardation to cede back the means of production to a capable and willing capital. Or it could just be the set-up for another Charlie Brown Field Goal.

The foreign powers go down South. They refurbish and refit shiny, new facilities that add remarkable value and verve to Mexico’s petrochemical industry. Then, the “people” feel oppressed by foreign industry which must; I tell you, must be nationalized. It’s a lot to think about before executives at Exxon HQ sink a solitary dime into resurrecting the yields down in Cantarell.

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