Mexico says gas leak caused deadly Pemex blast

MEXICO CITY Tue Feb 5, 2013 6:24am GMT

1 of 3. Mexican soldiers stand guard on the street outside the headquarters of state-owned oil giant Pemex (C) after a deadly blast, in Mexico City February 4, 2013.

Credit: Reuters/Henry Romero

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MEXICO CITY (Reuters) - The Mexican government said on Monday that a gas leak caused a blast that killed at least 37 people at the offices of state oil monopoly Pemex in Mexico City, raising fresh questions about the firm's safety record.

Attorney General Jesus Murillo said no trace of explosives was found at the site of the explosion, the latest in a string of disasters to hit the lumbering oil giant.

New President Enrique Pena Nieto is seeking to overhaul Pemex as part of a raft of economic reforms aimed at boosting growth in Latin America's No. 2 economy.

"We have been able to determine that the explosion was caused by an accumulation of gas in the basement of the building," Murillo told a news conference in Mexico City. He said the gas was believed to be methane.

Murillo said the gas may have leaked from containers in a storage facility connected to where the explosion took place by a tunnel. Or it could have leaked from an aging pipeline that passed through the building.

Another possibility is that it emanated from sewage in the ground under the building, he said.

Mexico City is built on a dried-out lake bed, and the stench of sewage often hangs over parts of the downtown.

Murillo said contractors working on supports under the building needed electricity and used an extension cord, which could have caused a spark that ignited the gas.

Thursday afternoon's blast at a building at the Pemex headquarters complex in downtown Mexico City prompted speculation the incident could have been an act of sabotage.

That raised fears that drug war violence that has killed an estimated 70,000 people in the past six years could have entered a new, more sinister phase, and rattled investors.

REFORM OUTLOOK

The explosion next to Pemex's flagship tower block prompted renewed criticism of the oil giant's safety record.

For years a source of national pride, Pemex has proven stubbornly resistant to change. The firm has become a touchstone for Mexico's capacity for economic reform since oil output began to fall behind the performance of other major producers.

A symbol of Mexican self-sufficiency since President Lazaro Cardenas expropriated U.S. and British oil companies in 1938 and nationalized the oil industry, Pemex has also become a byword for inefficiency and graft.

Pena Nieto, who took office in December, has made passing an energy reform to boost crude production a priority this year.

Geoffrey Pazzanese, who co-manages Federated Investors' $523 million Federated InterContinental Fund, said an accident would help the government push its energy reform.

"It's probably going to be positive for the reform. It underlines the need for Pemex to invest in its own capital spending," he said before Murillo spoke. "You have a big explosion in a building that's right in the middle of the city.

"Conspiracy theories aside, people are probably outraged about the situation and that tends to spur action," he added.

There were mixed responses on the streets of the Mexican capital to the government's news conference about the blast.

Fernando Chapa, 61, a university administrator, said the evidence seemed credible and that it looked like an accident.

"It doesn't suit anyone having an attack there. These are old buildings that have leaks. It's like in the mines," he said.

But supermarket worker Jorge Lopez was not convinced.

"I don't believe it. What a coincidence that there was a gas build-up," said Lopez, 28. "These are the results they give us after all these days? I don't know..."

OUTPUT SLUMP

Mexico is the world's No. 7 oil producer and a top exporter to the United States. But output has slumped from a peak of 3.4 million barrels per day in 2004 to under 2.6 million bpd now.

While the company had said it improved safety prior to the blast, fires, explosions and other safety breaches that are regular occurrences.

Mexico loses hundreds of millions of dollars a year to theft of oil carried out by drug gangs, petty criminals and corrupt workers. The Mexican government relies on oil revenues to fund nearly a third of the federal budget.

The heavy tax burden has limited Pemex's ability to fund new projects and lift crude output. The government has warned that Mexico could become a net oil importer as early as 2018 if major new oil finds cannot be developed.

The company had pinned its long-term hopes of boosting production on the deep waters of the Gulf of Mexico, where the government estimates there are significant oilfields.

The last conservative administration had helped Pemex by drawing more outside investment into mature oilfields via the auction of private contracts.

(With reporting by David Alire Garcia, Krista Hughes, Michael O'Boyle, Ana Isabel Martinez and Anahi Rama; Writing by Simon Gardner and Dave Graham; Editing by Xavier Briand and Lisa Shumaker)

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