Organized crime in Mexico is spreading beyond drugs. The cartels have a comparative advantage in transporting and smuggling high-value illicit product. So why not oil? Organized crime can threaten employees, knock over trucks, defend pipeline siphons, and move stolen goods across borders. Pemex is a hard organization to shake down, but a much easier one to steal from.
It turns out to be hard to get an idea of the scale of oil theft. According to Patrick Corcoran, Pemex lost about 3 million barrels of hydrocarbons last year, up 52 percent on 2011. This caused losses of roughly $500 million to the company. That number is large. It is not large relative to Pemex revenues north of $100 billion, but it is large relative to the estimated revenues earned by Mexican Organized Crime Organizations (yes, MOCOs), which is in the $7 billion per year range according to the Rand Corporation.
It is also quite possibly an underestimate. The Excelsior article that broke the story is vague on whether the figures are through Novemeber or from November. If the latter, then total losses could range as high as $3½ billion. Those numbers are possible. Last year the Wall Street Journal, citing Pemex’s CEO, estimated that criminal gangs stood to earn $750 million from oil thefts in 2011. Reuters reported $600 million in losses for the first half of 2011. David Shields estimated (although I am not sure on what basis) losses between $2 billion and $4 billion.
So what do we know? Page 172 of Pemex’s 2009 SEC filing estimated losses of 5.0 million barrels in 2008 and 3.1 million barrels in 2009. The breakdown between refined products and crude was not given. In its 2010 form 20-F, (on page 173 of a report filed in 2011) Pemex gave a little more detail. It estimated losses of 0.9 million barrels of diesel and gasoline in 2009, 1.4 million in 2010, and 1.4 million between January and May of 2011. It also reported losses of crude and condensates of 1.4 million barrels in 2009, 2.3 million barrels in 2010, and 2.0 million barrels between January and May of 2011. (For comparison, the amounts lost in Jan-May 2010 came to 0.3 million and 0.6 million respectively, so the increases are larger than they might seem.)
Using numbers on pages 4 and 5 of Pemex’s 2011 statistical yearbook, it is possible to calculate the gap between Mexico’s domestic supply (production + imports − exports) of refined products and its domestic sales of refined products. (Before 2006 the definitions were different, effectively overstating exports: for that reason, sales were consistently larger than supply.) The excess of supply over sales rose from 4.4 million barrels in 2007 to 9.5 in 2008, 10.6 in 2009, and 31.8 million in 2010. I would assume that most of that is stockpiling, non-theft losses, or refined products used as inputs in petrochemical production, but the trend is ominous.
Again, however, it should be emphasized that the reported losses are not large relative to Pemex production. In 2010, the company produced 516 million barrels of refined products and 1.1 billion barrels of crude and condensate. That would make theft equal to about 0.3% of domestic production of refined products and 0.2% of crude and condensates. The scary thing is the trend, not the level.
What can be done? As Patrick Corcoran points out, a lot of the stolen oil is destined for the United States. And that raises a possibility for the next post, which involves some of the most entertaining legal documents that I have ever had the pleasure to read.