Sit-In

Lawmakers had to cram into conference rooms to press ahead with routine business on Tuesday.

Leftist MPs seized the podiums of both houses last week in protest at plans to ease limits on private involvement in the state oil giant, Pemex.

The government says Pemex needs outside investment to boost falling production.

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Importance: The oil is in the hands of the government and if it's not then no one knows what will happen, but people are picking sides faithfully.

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Oil Reform

MEXICO CITY (Reuters) - A plan to shake up Mexico's flagging state-run oil sector met with muted reaction on Wednesday, with most seeing it as positive but not enough to restore declining output and reserves overnight.

The government's proposal, which was diluted to give it the best chance of passing through Congress, proposes more hiring of private companies across the oil industry through "incentive contracts" that offer bonuses for work well done.

Foreign oil majors, who want Mexico to join the rest of the world in offering risk-sharing joint ventures, especially in the huge deep-sea sector, mostly declined to comment as they huddled in meetings over the plan.

But analysts see the sweetened service contracts doing little more than drumming up more business for oilfield service companies such as Schlumberger (SLB.N: Quote, Profile, Research), which state oil monopoly Pemex hires to help with engineering work.

"My initial impression is that it's relatively modest," said RoseAnne Franco at PFC Energy. "For the international oil companies it comes down to being able to book reserves."

Pemex, a top U.S. oil supplier, has long complained about Mexico's barriers to private oil investment and says it needs partners to help it unlock huge deepwater reserves as yields decline at its shallow water and onshore fields.

But many question whether the proposed contracts will attract big players like BP (BP.L: Quote, Profile, Research) and Petrobras (PETR4.SA: Quote, Profile, Research) into deep-sea exploration, given such costly and risky ventures are repaid in other countries by giving the partner a share in reserves.

"The important aspect of any contract is the incentive part. If someone is doing a really good job they should be paid for it. But there are different types of incentive around the world so we'll have to wait and see what they are offering," said a Mexico-based executive for a foreign oil major.

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Importance: Calderon is finally acting on the nation's need for an alteration in their oil operations. Even though this proposed reform is watered down in order to be passed in the Mexican Congress, it is a start. The political culture of the country would rebel against a reform too radical because the majority of the population is still against foreign investment despite Pemex's dire need of a partner in oil welling.

Oil Stays with the Government

Mexican President Felipe Calderon's plan to overhaul energy laws and allow private investment in the state oil monopoly lacks political support, a prominent opposition senator said.

Senator Francisco Labastida of the Institutional Revolutionary Party, an opposition group, said ``there's no chance'' that ``comprehensive reform'' will pass. He spoke in an interview today at the senate building in Mexico City.

Failure to open the oil industry may mark the biggest political defeat yet for Calderon, who managed to win support for cutting pensions and raising taxes since taking office in December 2006. Mexico, the third-largest oil supplier to the U.S., needs the help of foreign and private companies to halt a decline in crude output and reserves, Calderon has said.

Importance: Calderon has been getting a lot of what he wants recently, so it is nice to see him stopped in certain areas even if stopping him is keeping the socialist mark upon Mexico.

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Oil Ad

Mexican President Felipe Calderon is using national television ads to overcome opposition to his plan to open the state oil monopoly to foreign investment, saying the nation needs outside help to get to crude in deep waters.

Forty-six percent of Mexicans polled by Reforma newspaper this week said they opposed Calderon's initiative, which the government says is the only way Mexico can halt a decline in oil output and reserves.

``Mexico has a great treasure, a treasure buried deep under the sea,'' a narrator says in the ad, which began to air last night. ``We need to get to it.''

Petroleos Mexicanos, the state oil company, lacks money and the technology to explore in waters deeper than 5,000 meters, where most Mexican deposits are, according to a government study.

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Importance: Televised persuasion...sounds like propaganda in action to me...but perhaps I am too harsh. All told, it is an interesting tactic to win support for the President's directive; as for its effectiveness, that's open for debate. The ad seems to have created more questions than helped to bulster confidence in the people. Regardless, the fact that Pemex is in need of some turn around legislation is evident.

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A Greener Mexico

Within four years, Mexico wants to produce 25 percent of its electricity from renewable sources, the country's energy secretary said.

"The goal is that in 2012 renewable energy sources will account for more than a quarter of total capacity," said Georgina Kessel.

One of the Mexican government's priorities is to promote renewable energy as a means of ensuring the country's energy security, Spanish news agency EFE reported.

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Importance: It's good Mexico is taking a step towards the gren side of life. When we run out of oil the countries that didn't think ahead are going to have some large problems to deal with.

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Private Investment for Pemex?

Oil output in Mexico, the third-biggest supplier to the US, is declining, and the state company Petroleos Mexicanos (Pemex) lacks the technology to explore for new reserves. For many the answer seems simple: more capital.

But now that senators have begun debating ways to attain that capital – a top priority of President Felipe Calderón – resistance has mounted, particularly to the idea to allowing in private enterprise.

In no place is there more opposition than along the industrial corridor in this resource-rich, steamy stretch of Veracruz State. "This oil is from here, and it belongs to us," says Francisco Lopez Martinez, who inspected oil barges at Pemex for 36 years before retiring this year.

Pemex has been Mexico's sacred cow since foreign companies were kicked out in 1938. Since then the Constitution has barred private ownership. Pemex is a source of national pride, but it's been crippled by inadequate funding, corruption, and inefficiency.

High oil prices have helped mask the decline, says Amy Myers Jaffe, an energy analyst at the James A. Baker III Institute at Rice University in Houston. Pemex generated revenue of about $100 billion last year. But the situation, under the surface, is dire.

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Importance: The drop in oil output is bad for Mexico; Pemex supplies around 40% of the national budget, so losing the company does not appear to be an option. Mexicans are weary of foreign investment, though, because they feel it will take jobs away from them. Something will have to be done, however, to get the company the needed funding to investing in more technology. The company has also been subject to claims of corruption, indicating yet another instance when corruption has hindered Mexico's strides toward increasing development and democracy.

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Pemex and Petrobras

Brazil's state oil company Petrobras is trying to interest its Mexican counterpart Pemex in joining one of its offshore exploration projects in the U.S. Gulf of Mexico, a Petrobras executive said on Thursday.

State-controlled Pemex is banned by law from forming joint ventures in oil exploration and production within Mexico, but it is allowed to form joint ventures abroad.

Samir Awad, executive manager for the Americas, Africa and Eurasia, said Petrobras (PETR4.SA: Quote, Profile, Research) (PBR.N: Quote, Profile, Research) suggested working together in U.S. waters as part of an informal cooperation agreement the two companies have had for some time.

"This was offered some time ago on a very informal basis, in a meeting between the two (chief) executives, without any particular block or area in mind," Awad said by e-mail.

He said Pemex's response was that it could not accept the offer in the near term, for internal reasons, but that it would evaluate the possibility of joining Petrobras in the U.S. Gulf in the medium to long term.

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Importance: Petrobras has been a model of sorts for Pemex as a state-run company that has embraced privatization at some levels. Drilling in U.S. oil, though, has some worried that it will draw revenue from the Mexican stores of oil.

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UPDATE 2-INTERVIEW-Mexico Senate sees April energy law proposal

MEXICO CITY, Jan 24 (Reuters) - Mexican senators expect to have a proposal ready in April for an energy reform aimed at revitalizing the sector and possibly bringing vital deepwater Gulf of Mexico oil within reach, a senior legislator said.

After a year consulting with Mexican and foreign experts, lawmakers from all parties agree the oil sector needs a shake-up to ensure Mexico's future as a world class oil exporter, Sen. Ruben Camarillo told Reuters in an interview Wednesday evening.

"I estimate it should be during April," Camarillo said, referring to when the senate committee would have a draft proposal ready to submit. Some lawmakers had seen a bill ready by end-February but most feel more time is needed.

The reform attempt will be conservative President Felipe Calderon's most ambitious yet since he took office a year ago and shook up Mexico's pension, fiscal and justice systems.

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Importance: This article plainly states that there will be a proposal in April concerning energy reforms. It also concerns the halting of a major oil monopoly, Pemex. Mexico will likely gain more oil from the Gulf of Mexico.

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Attempt at Oil Reform

CANTARELL, in the Gulf of Mexico, was once the world's biggest offshore oilfield, holding over 35 billion barrels of the black stuff. Now, after nearly three decades, it is running out. At its peak in 2004 it produced 2.1m barrels of oil per day (b/d), making up 60% of Mexico's total output. That figure has already fallen by more than 500,000 b/d and could fall by another 200,000 b/d by the spring.

This is a worry for both Mexico and the world. Although Mexico contains less than 1% of the world's proven oil reserves, it is the sixth-largest producer. Its output of 3.1m b/d is well above that of Venezuela or Kuwait. And although oil no longer dominates the Mexican economy—even at recent high prices it provided 16% of exports in 2006, down from 68% in 1982—it lubricates the public finances, contributing nearly 40% of federal revenues.

The obvious solution is to privatise the industry, but that is politically impossible. The state oil monopoly is both popular and constitutionally mandated. So Mr Calderón and other politicians have been searching for ways to loosen the monopoly while respecting the constitution.

The Senate's energy committee is holding a “private, technical debate” on how to do this, according to Rubén Camarillo, a senator from Mr Calderón's centre-right National Action Party. The purpose is to try to reach an all-party consensus by February. So far there is “agreement about what needs to be done, but not how to do it,” says Mr Camarillo.

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Importance: Reforming its oil production would be helpful to Mexico's economy as would increased privatization. Politically, President Calderon could risk his precarious legitimacy by implementing these reforms that could test the Mexican constitution as well as bring into conflict political parties.