US Energy Companies Balk As Theft From Mexican Gas Pipelines Rises

The loss of oil and gas from Pemex pipelines totals more than $1 billion a year, leaving some U.S. companies skittish about entering the Mexican market.

By Lorne MatalonSeptember 26, 2017 11:20 am,

In 2014, the Mexican oil and gas market opened itself to foreign companies. It was the first time regulators allowed foreign participation since 1938. Since then, major U.S. energy companies such as ExxonMobil and Chevron have entered the Mexican energy space. But smaller companies such as drillers, rig operators and seismic surveyors – the nuts and bolts of an industry that Mexico’s politicians hope will lift the economy – are hedging their bets because of a serious threat the Mexican government says is rising: the theft of oil and gasoline from Mexican pipelines.

In the last few years, at least 120 workers at the state-owned oil company Pemex have been arrested for sharing inside information about the location  of pipelines, which often run through sparsely-populated rural regions.

Pemex has published statistics illustrating the rise in theft from its pipelines, including the most recent known case of collusion between organized crime and either Pemex employees, or other public servants working with Pemex.

The loss of oil and gas from Pemex pipelines currently totals more than $1 billion a year, leaving some U.S. companies skittish about entering the market, according to a recent report from Rice University in Houston.

This phenomenon of lax security and alleged collusion is a major red flag for U.S. investors. Mexico’s mantra is that despite deep-rooted narco-violence, energy infrastructure is secure. Some Mexicans don’t buy that.

“They sell stolen gas in hidden places,” says taxi driver José Avina in Spanish, while pointing to a side road. “But everyone knows where to find them,” he says of the huachicoleros, the pipeline thieves.

These days, songs celebrate huachicoleros as modern-day Robin Hoods, fighting higher prices at the pump. Gas prices began rising in a staggered roll-out across Mexico in January when government subsidies ended as part of Mexico’s energy reform. The price rise triggered Mexico’s gasolinazo, a series of riots, during which drivers rebelled against the new gasoline price structure.

There are numerous examples of politicians and high-ranking state police officers working in the illegal trade of stolen gas, often using information on a given pipeline’s location, allegedly provided by contacts inside Pemex. In June, a mayor in the state of Puebla was arrested. Previously, the former head of the Puebla State Police and his chief of operations were removed from office after they were caught protecting traffickers as they took gasoline from a pipeline.

“You and I cannot go out and start looking for a pipeline and tap that pipeline. You have to know where it is and the right place in which to do it,” says Jorge Piñon about the alleged sharing of inside information by current and former Pemex employees. Piñon is the former head of Amoco Oil Latin America and is currently the leader of the Latin America and Caribbean Energy Program at the University of Texas at Austin.

Deadly explosions, environmental damage and standoffs with the Mexican army are all consequences of the trade in stolen commodity.

Miguel Arturo Flores, a leader of the oil workers’ union expresses frustration at the situation. “How can we reform our energy sector when shady actors on both sides of the law are involved?”

For foreign investors, words like that mean market uncertainty.

“It’s not just security, that is, the ability of companies to protect their pipelines or their trucks that deliver fuel and so on, but also to protect their personnel from kidnapping and from being robbed and assaulted,” says Tony Payan who heads the Mexico Center at Rice University.

Major U.S. companies, including ExxonMobil are opening branded gas stations in Mexico. But Payan says smaller companies like drillers and seismic surveyors are waiting before committing their capital.