Mexico Pipeline Blast Kills 28, Blamed on `Criminal Gang' Stealing Fuel

Mexican authorities blamed an oil pipeline explosion that killed 28 on criminals who lost control of the fuel as they attempted to siphon it off.

Yesterday’s blast at the 30-inch Nuevo Teapa pipeline operated by state-owned company Petroleos Mexicanos in San Martin Texmelucan, Puebla state, also injured 52 people, the company, known as Pemex, said in a statement on its website. The explosion damaged 115 houses, Pemex said.

Frequent thefts of Pemex fuel reflect the growing impact on the energy industry of the broader wave of criminal activity afflicting Mexico, said David Shields, a Mexico City-based independent energy analyst and publisher of Energia magazine. The company said last year it had 5 million barrels worth 9.3 billion pesos ($750 million) stolen in 2008.

“It’s not an isolated incident,” Shields said in a telephone interview. “It’s part of the constant problem we’re living every day.”

The company has detected this year over 550 cases of illegal tapping from its oil pipelines, Pemex Chief Executive Officer Juan Jose Suarez Coppel said yesterday in an interview with the Televisa network.

“Organized criminal groups have increasingly sought to steal fuel as part of attempts to diversify their revenue stream,” London-based consulting firm Control Risks Group said today in a research note.

Drug Cartels

The office of Mexico’s attorney general said in March 2009 that people arrested in connection with fuel theft against Pemex may have been working with drug cartels.

The attorney general’s office began an investigation of the blast on orders of Mexico President Felipe Calderon, Interior Minister Jose Francisco Blake Mora said in comments broadcast on Milenio TV.

Calderon gave his condolences to victims of the explosion yesterday, traveling to the scene and visiting a hospital where the injured are being treated.

The pipeline runs from the port of Dos Bocas in Tabasco state to the Tula refinery in Hidalgo state. The refinery has as many as four days of supply to maintain production of as much as 280,000 barrels a day, said Fabricio Guerra, a Pemex official in Tula.

Output from the Tula refinery, Mexico’s largest, was 269,397 barrels a day in October, according to data from Mexico’s Energy Ministry website.

Alternative Pipeline

The refinery can use another pipeline if Nuevo Teapa is down for more than four days, said Guerra, who didn’t have an estimate of how long repairs would take. The Tula refinery is “still operating normally,” he said.

The alternate 24-inch pipeline has the capacity to transport 160,000 barrels a day to the plant in Tula, Pemex said today in a separate statement.

The incident is unlikely to affect Pemex’s national production or its debt, Shields said.

Crude oil for January delivery rose 79 cents to settle at $88.81 a barrel on the New York Mercantile Exchange. January futures expire today. The more active February contract rose 77 cents, or 0.9 percent, to $89.37 a barrel.

Pemex dollar-denominated 10-year bonds rose today for the first time in six days to 101.375 cents on the dollar. The yield on the bond due 2021 fell 14 basis points, or 0.17 percentage points, to 5.32 percent.

Pemex, the second-largest supplier of oil to the U.S. after Canada, exported 1.225 million barrels of crude a day in 2009. About 85 percent, or 1.086 million barrels, was sold to the U.S., according to Pemex statistics.

Net Importer

Mexico is a net importer of refined petroleum products. In 2009, the country imported 519,000 barrels a day of refined products while exporting 244,000 barrels daily. Gasoline represented about 60 percent of its petroleum imports.

Pemex is building its first refinery in three decades in the state of Hidalgo, next to the current Tula refinery, to keep up with rising gasoline use as more Mexicans buy cars.

Demand for the fuel in Mexico, which imports about 40 percent of domestic consumption, may gain 5 percent a year through 2012, according to the Energy Ministry.

Giant Cloud

The explosion, which occurred at 5:50 a.m. local time yesterday, caused crude to flow into a nearby river and a giant cloud of smoke to erupt into the sky, the Milenio television network reported.

Valentin Meneses, Puebla state’s interior secretary, said in an interview on the Milenio TV network that 32 of the 115 damaged houses were completely destroyed.

“All of this is the consequence of a criminal gang,” Meneses said. “They lost control because of the great force of the fuel that came out. Many streets started to flood with fuel. There was a spark and there were rivers of fire.”

Pemex said in an e-mailed statement that the fire was controlled by the company’s emergency workers and local authorities. The military has also been deployed, Pemex said.

Mexican Attorney General Arturo Chavez said last week that 30,196 people have been killed in drug-related violence nationwide since Calderon took office four years ago and began deploying troops in a battle against cartels.

This year’s toll of 12,456 drug-related deaths is the highest since Calderon took office.

To contact the reporter on this story: Jens Erik Gould at jgould9@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net

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