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Mexico Still Seeking Answers Days After Deadly Pemex Blast

February 03, 2013

Mexico Still Seeking Answers Days After Deadly Pemex Blast

Mexican soldiers clean up debris at the Petroleos Mexicanos headquarters in Mexico City on Friday. Photographer: Susana Gonzalez/Bloomberg

The search for the cause of a blast that destroyed three floors of a building at Petroleos Mexicanos’s headquarters and killed at least 34 people entered a fourth day, as investigators toiled ahead of a self-imposed deadline for finding an answer.

Federal agents are reviewing tapes from banking facilities, such as Grupo Financiero BBVA Bancomer SA, in the complex as well as forensic, chemical and explosive evidence for clues to the cause of the Jan. 31 explosion.

“In a few hours, a day or two, but no later,” we’ll have update on the certainty of the cause of the blast, Attorney General Jesus Murillo Karam, said Feb 1.

The nation’s deadliest explosion since a mine accident in 2006 comes as President Enrique Pena Nieto, who took office Dec. 1, plans to submit a bill to increase private investment in the energy industry and lower taxes on Pemex, the nation’s largest company by revenue and the world’s fourth-biggest crude producer.

The initiative is set to be the biggest energy-industry overhaul since the nation seized oil fields from British and U.S. companies 75 years ago. Unrelated to the bill, Pemex’s management was due to conduct a review of a plan this month to merge some or all of its units in a move that, according to El Universal, may reduce as many as 15,000 non-unionized jobs.

Security Boosted

Murillo said there weren’t signs of any fire sparked by the explosion. “The federal government is determined to find the truth of this incident whatever it may be, whether it involves an accident, whether it involves negligence, whether it involves an attack,” he said.

Pemex has stepped up security at oil production facilities during the investigation, the company said.

Investigators from the attorney general’s office, the Defense Ministry and Navy are inspecting about 1,300 square meters (14,000 square feet) of rubble from the basement, first and second floor.

The basement of the B2 building held storage for documents, polishing machines and a water-treatment plant, a Pemex official, who declined to be identified, citing corporate policy, said yesterday in an interview. The union office was on the first floor, as well as management offices for human resources and administration, which also occupied space on the second floor.

Pemex Output

Pemex Chief Executive Officer Emilio Lozoya, who took the helm of the oil producer two months ago, told reporters Feb. 1 that the incident didn’t hinder Pemex output. The company, he said, is producing about 2.57 million barrels of oil daily and the headquarters will reopen Feb. 5 after a three-day federal holiday weekend commemorating Constitution Day.

The blast also injured 121 at the complex where about 10,000 work or visit daily, Lozoya said. Yesterday, he visited several of those who were injured and attended the funeral services of many of the fatalities.

Milenio TV reported that the incident may have been caused by an implosion due to halon gas, a fire-suppressant chemical that the network said Pemex was storing after taking the gas offline amid global bans because of the threat it poses to the environment. Milenio didn’t say where it got the information. Murillo said that while he couldn’t confirm whether halon was found at the scene, an implosion has been ruled out.

Shattered Windows

Footage on Milenio TV showed shattered windows and gaping holes in walls on several floors after the blast rocked the B2 building adjacent to the company’s main office, the second- tallest tower in the country, between 3:40 p.m. and 3:45 p.m. local time on Jan. 31. Security personnel surrounded the complex and roped off the area outside, where dozens of ambulances were parked and a bust of the late President Lazaro Cardenas, who nationalized Mexico’s oil industry in 1938, stood intact.

Employees were evacuated from the scene of the blast, some on stretchers. The Army cordoned off the complex and sent in search parties with dogs to seek survivors.

The explosion won’t have any financial or economic impact, Lozoya said in an interview Feb. 1 after the news conference with journalists in Mexico City.

The cost to protect Pemex debt against non-payment for five years with credit-default swaps was little changed at 115 basis points Feb. 1, according to data compiled by Bloomberg. Credit- default swaps pay the buyer face value if the issuer fails to comply with debt agreements.

Bond Yields

Yields on Pemex dollar bonds due 2022 rose three basis points, or 0.03 percentage point, to 3.53 percent, according to prices compiled by Bloomberg. The Mexican peso erased earlier losses to rise 0.8 percent to 12.6062 per U.S. dollar.

Leticia Vigueras, who was working on the second floor of the adjacent B1 building, said she felt a burst like a shockwave as the windows shattered.

“From the magnitude of the damage, it’s hard for me to think it was an accident,” said Vigueras, 38, a finance department employee who said one of her co-workers was killed and another is missing. “The whole structure of the first floor and mezzanine was destroyed.”

The explosion “seriously” damaged the basement and the first two floors of building B2, Interior Minister Miguel Angel Osorio Chong told reporters on Jan. 31.

Possible Deficiencies

The blast may have been related to maintenance deficiencies in the boilers used for power generation and air conditioning, Mexico City-based newspaper El Universal reported, citing Moises Flores, the leader of one of Pemex’s unions.

Pemex said on its Twitter account on Jan. 31 that an electrical failure had prompted a preventive evacuation of the headquarters. Lozoya declined to comment on the bad equipment report.

“We’re going to dedicate ourselves as much as possible to first know what happened,” Pena Nieto said from the explosion site, when he toured the area hours after the blast. “If there are people who are responsible in this case, we’ll put the full weight of the law on them.”

Pena Nieto on Jan. 30 spoke at a conference for his Institutional Revolutionary Party, promoting his proposed energy-industry overhaul in a bid to stem production declines at Pemex. While he’s promised not to privatize Pemex, he’s also pledged to forge ahead on a modernization that would allow more non-government investment and boost competitiveness.

Overhaul Efforts

The government undertook some overhaul efforts with Pemex under the previous administration. In 2008, then-president Felipe Calderon pushed through a bill that allowed outsourcing production projects through performance-based contracts.

“At this point, I don’t think it will have any impact” on the overall discussion of an energy sector overhaul, Alejandra Leon, a Mexico City-based analyst at IHS CERA, said in an interview. “Especially if this is just an accident, which is the most likely cause.”

At least three other incidents have caused significant casualties at Pemex in the past five years. A fire at a gas distribution hub near the U.S. border left at least 30 dead last year, and 21 workers were killed in 2007 when an oil rig hit a drilling platform in the Gulf of Mexico.

In addition, an explosion prompted by a criminal gang attempting to steal oil from a pipeline in the state of Puebla killed 28 in 2010. Mexico has been wracked by drug violence since Calderon sent troops to fight the nation’s organized crime groups after taking office in December 2006. The drug war resulted in more than 58,000 deaths during his term, and his government estimated it shaved one percentage point annually off gross domestic product.

Equipment Funds

Milenio newspaper reported that between 2008 and 2011 Pemex requested funds to update disaster-prevention equipment, such as smoke detectors, at its headquarters. The government repeatedly denied those requests, Milenio said.

The explosion could have been even deadlier at other times of day. “At the time of the blast many Pemex employees, including my staff and those of other board members, were out” board member Fluvio Ruiz said in an interview on Jan. 31. “It was lunch hour.”

The Pemex facilities are “very well maintained,” leaving a “low probability” of accidents at the site, Sergio Flores, a former Pemex employee who teaches architecture at Mexico’s National Autonomous University in Mexico City, said in an interview.

Barclays Note

Barclays Plc said in a note to clients that the explosion is “very unlikely” to have been caused on purpose.

“We believe that if the blast is proved to have been an accident, it should not affect discussions on Pemex reform,” Marco Oviedo, Barclays analyst, wrote in the note.

Tomas Torres, vice-coordinator of the Green Party in the lower house of congress, said the incident will probably intensify debate over Pena Nieto’s plans to overhaul the oil industry.

“Positions may harden,” Torres said in a telephone interview from the central state of Queretaro. “It could be an element that strengthens the argument to invest in, modernize and take care of” Pemex, although those opposing changes may lobby against “using the pain of the families who died there for political reasons,” he said.

To contact the reporters on this story: Carlos Manuel Rodriguez in Mexico City at carlosmr@bloomberg.net; Brendan Case in Mexico City at bcase4@bloomberg.net; Nacha Cattan in Mexico City at ncattan@bloomberg.net.

To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net; Andre Soliani at asoliani@bloomberg.net.


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