UPDATE 3-Mexico warns of energy crisis without overhaul

(Recasts; adds details, background)

By Jason Lange

MEXICO CITY, May 8 (Reuters) - Mexico, a key supplier of crude oil to the United States, will suffer a severe energy crisis within a decade unless its huge but troubled oil sector is overhauled, Energy Minister Georgina Kessel said on Thursday.

Kessel urged lawmakers to approve a government proposal to reverse a drop in crude output by letting private companies have a bigger role in the state-run oil industry.

"If we don't do anything, Mexico will face a severe energy crisis before the next presidential administration ends (in 2018)," Kessel told lawmakers.

State oil monopoly Pemex pays for schools, roads and hospitals by funding about a third of government spending, but its reserves are falling because it lacks funds and expertise for exploration.

The government's plan, presented by conservative President Felipe Calderon in April, is being held up by leftists who say it will mean a creeping privatization of Pemex.

Leftists staged protests last month until the government agreed to hold several months of public debates about the oil sector's future.

The left, which like Calderon lacks a majority in Congress, wants to break up the alliance Calderon is trying to build with a centrist party that has said it likes the general look of the proposal but also is suggesting some changes.