U.S. case highlights Mexico's rampant oil theft

MEXICO CITY (Reuters) - Mexico's state-run oil company Pemex has an endemic problem of fuel thefts from pipelines that was highlighted this week in a case involving stolen oil smuggled into the United States.

U.S. customs authorities handed over $2.4 million to the Mexican government on Tuesday that was uncovered in a joint investigation into oil stolen in Mexico and sold north of the border.

Tapping into state oil monopoly Pemex's PEMX.UL pipelines to steal gasoline, diesel and even jet fuel has generated hundreds of millions of dollars of profits for Mexican criminals for years.

The lost fuel is a significant cost for Mexico, which relies on imports for more than 40 percent of its gasoline despite being one of the world's largest oil producers and exporters.

Pipelines buried beneath farms and in other rural areas are frequently dug up by the thieves who attach valves to allow them to drive up tanker trucks to the line and siphon off the fuel.

For the most part, stolen fuel is sold to corrupt service station owners and companies that operate large fleets of vehicles in Mexico.

Pemex frequently finds the connections and seizes tanker trucks full of fuel but arrests are uncommon and convictions are even rarer, especially of the leaders of fuel theft rings.

The Texas case is no surprise to long-time watchers of Mexico's oil industry.

"It's just business as usual for Pemex except for the fact that it has come to light," said Mexico oil analyst George Baker.

"There is no corporate business unit responsible for pipelines. It's completely balkanized and the pipeline integrity people are infiltrated by the traffickers," Baker said.

Mexico's powerful drug gangs, who the government accuses of participating in the theft, are believed to fuel their aircraft with stolen jet fuel to cover up evidence of illicit flights.

But despite periodic crackdowns, the thieves have grown bolder, as evidenced by their expansion into stealing crude oil, which must be smuggled out of the country where it can be refined if it is to have any value.

U.S. oil trader Donald Schroeder pleaded guilty in May to buying stolen Mexican condensate, a raw hydrocarbon similar to crude oil, and arranging for it to be shipped to Texas on a barge.

Condensate, which like crude oil must be refined, is mainly processed in petrochemical plants to make plastic.

HUNDREDS OF CONNECTIONS

Pemex found nearly 400 illegal connections to its pipelines last year and estimated its losses at $700 million.

The company claims it has cut the amount of fuel being stolen, but corruption within the company remains key to the operation of many fuel theft rings.

Federal police raided Pemex's own internal security department in July as part of a probe into fuel theft, seizing computers and documents and interviewing dozens of employees, although no one was arrested.

The company says it is making progress in fighting the thefts and has cut the volume of fuel being stolen.

"Pemex is committed to fighting any instance of this problem with all means available in cooperation with other authorities," a Pemex spokesman said.

Yet stealing gasoline from Pemex remains relatively easy, given widespread corruption within the company and the lack of monitoring systems in many pipelines that would detect the loss of pressure.

Pemex has begun installing systems to detect declines in pressure in some oil product pipelines but the project is expected to take years to complete.

(Reporting by Robert Campbell; Editing by Lisa Shumaker)