Pemex (Petróleos Mexicanos)
Pemex, or Petróleos Mexicanos, is a state-owned oil company based in Mexico City, recognized as one of the largest oil companies globally. Founded in 1938 under President Lázaro Cárdenas, Pemex was created to nationalize the Mexican oil industry, which had previously been dominated by foreign companies. This move followed a significant oil workers' strike and culminated in the expropriation of foreign oil assets, allowing Mexico to take control of its natural resources.
Historically, Pemex has been crucial to the Mexican economy, providing a substantial portion of the government's tax revenue. However, it has faced challenges, particularly in the early 21st century, due to falling global oil prices and operational inefficiencies. In response, the Mexican government has enacted reforms to attract foreign investment and support the company's financial recovery, including ending Pemex's long-standing monopoly in 2013. Despite these efforts, Pemex has struggled with significant debt and environmental concerns, remaining a key employer and an essential player in the global oil market. As of 2023, the company continues to navigate its financial difficulties while seeking to regain its position within Mexico's energy sector.
Pemex (Petróleos Mexicanos)
Company Information
Date Founded: 1938
Industry:Petroleum, oil
Corporate Headquarters: Mexico City, Mexico
Type: State-owned
Overview
Pemex, also known as Petróleos Mexicanos, is a state-owned Mexican petroleum and oil company headquartered in Mexico City. It is one of the largest oil companies in the world and historically has supplied a substantial amount of tax revenues to the Mexican economy. This has made Pemex a key financial asset of the Mexican government.
Pemex was established in 1938 by Mexican President Lazaro Cardenas. He allocated funding for the new company by expropriating, or placing under state ownership, the resources of all foreign oil companies operating in Mexico at the time. Cardenas then directed all Mexico’s oil assets into a new state-controlled oil company that became Petróleos Mexicanos, or Pemex.
The company quickly proved successful and expanded greatly over the next several decades, as discoveries of new oil fields helped to increase production and generate revenue for the Mexican government.
The early twenty-first century brought signs of financial hardship to Pemex, as falling global oil prices forced the company to sharply cut production. This trend continued into the 2010s, and in 2013 the Mexican government approved of ending Pemex's total monopoly. Pemex received more than $4 billion in government aid to see it through its crisis as reforms came into effect. Due to Pemex’s extraordinary importance to the vitality of the Mexican economy, the Mexican government continued working to improve its operations even as international investment in the Mexican petroleum industry increased.
History
Mexican President Lazaro Cardenas’s creation of the state-operated Petróleos Mexicanos in 1938 was meant to reform the oil environment that had existed in Mexico for decades. Prior to this, the Mexican oil industry was controlled almost entirely by foreign companies. The joint British-Dutch company Royal Dutch Shell, for instance, controlled 60 percent of oil production in Mexico, while the American companies Jersey Standard and Standard Oil Company of California controlled a combined 30 percent. Mexico, therefore, was left to produce only 10 percent of its own oil.
The Mexican constitution of 1917 declared that Mexico’s government owned the country’s subsoil and all the natural resources contained within it. For decades, however, the risk of souring diplomatic relations with the United States had deterred Mexico from actually exercising its legal right to its own oil over the claims of American companies. By the 1920s, Mexico was the second largest oil producer in the world, despite enjoying only a fraction of the industry’s profits.
A 1937 strike by Mexican oil unions proved to be the turning point in Mexico’s struggle to control its own oil. The workers demanded higher wages but were refused by the foreign oil companies. The companies held this position even after the Mexican Supreme Court ruled in favor of the unions. With Mexico’s national oil production interrupted by the strike and the wage dispute deadlocked, Mexican president Cardenas officially expropriated all foreign oil assets in Mexico and placed them under the management of the Mexican federal government.
In June 1938, with Mexico now in control of its own oil fields and the assets of numerous wealthy foreign oil companies, Cardenas created Petróleos Mexicanos, more commonly known as Pemex, as Mexico’s state-owned oil company. Pemex would produce all Mexico’s oil on its own, barring foreign investors from owning company shares.
Mexico’s nationalization of oil production generated international backlash. The foreign companies that had been forced out of Mexico by the creation of Pemex enacted embargoes against Mexican oil. This decreased Mexican oil exports by 50 percent, and, for several years, Pemex was forced to sell its oil mainly to Nazi Germany.
Cardenas’s expropriation had also angered the US federal government and the American oil companies that were now losing business on their Mexican operations. The Mexican government eventually agreed to compensate some American oil companies for their losses in the creation of Pemex, but the US government ultimately failed to reopen American oil production in Mexico.
In the late 1940s, with this initial international blowback behind it, Pemex was free to begin expanding its production. Over the next several decades, the company’s revenues and taxes became a hugely important element of the Mexican economy. The 1970s brought Pemex a financial boom due to the discovery of new, untapped drilling sites in the Cantarell oil field in the Gulf of Mexico. By the early 1980s, Mexico was being compared to the oil-rich Saudi Arabia, and Pemex was even believed to be more reliable than the powerful oil companies of the Middle East, where conflict often threatened production.
The early 2000s saw Pemex’s extended good fortune begin to reverse. The company’s production peaked in 2004, with about 3.3 million oil barrels produced daily. But the gradual decrease in global oil prices that began around this time forced Pemex to slow production. Its lack of deep-water oil-extraction technology only worsened its financial situation.
The Mexican government devoted great effort to bolstering the increasingly cash-deficient Pemex in the 2010s. In 2013, Mexican president Enrique Peña Nieto proposed reopening the company to foreign investment, which had been legally prohibited since 1938. Reforms to Mexico's energy sector that ended Pemex's seventy-five year monopoly would be phased in over the next several years. Pemex also cut jobs and delayed some major development projects, including its deep-water exploration plans, to save about $4 billion in spending. Ongoing financial concerns in 2016 necessitated a $4.2 billion aid package from the federal government to Pemex.
These efforts and the renewed flow of foreign investment into Mexico's petroleum industry helped stabilize Pemex. Projects in the late 2010s continued to attempt to reverse the decline in production. In late 2017 the company announced the largest discovery of onshore oil deposits in Mexico in over a decade. Even as Pemex's outlook improved, however, some onlookers worried about the effects of political forces on Mexico's energy reform and therefore on the state-owned oil company. By 2020, the company had accumulated exceptional debt and was noted to be the seventh most polluting company in the world. President Andrés Manuel López Obrador set out to restore the company's reputation and money-making power. An amendment was made to Mexico's hydrocarbons law in 2020, which allowed the company to restore its power over the market. Although this set the company up for potential success, the Mexican government was forced to step in to help the company in the deferral of a $2 billion tax bill in April 2023, and in May 2023, Pemex profits were significantly lower than expected.
Impact
Pemex was the largest company in Mexico in the twenty-first century. For many years, it supplied the Mexican government with about one-third of the tax revenues of the entire Mexican economy. Though its financial struggles in the 2000s and 2010s sapped much of its resources, Pemex remained a vital employer of the Mexican people and one of the world’s primary oil producers.
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