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Time Running Out for Energy in Mexico
Cantarell, Mexico's top oil field is declining rapidly
By Marcela Sanchez
Mexican
Energy Secretary Georgina Kessel's warning to the Mexican
Congress last week sounded ominous: If legislators
did not approve reforms within the oil sector, the country
would suffer a "severe energy crisis" within a
decade.
That's probably an understatement.
Mexico's oil production is rapidly declining. The Cantarell
oil field, one of the world's largest, is responsible for almost
two-thirds of Mexico's production. In 2004, it brought up 2.1
million barrels a day; today it produces only half that. Unless
new sources are found, Mexico -- up until last year the second-largest
supplier to the United States -- will become a net oil importer
by the year 2018.
For
some countries, being a net oil importer is no big deal.
But for
Mexico, oil represents the single largest amount of
revenue for the federal government -- about 40 percent. This
looming "energy crisis" would be felt more than just
at the pump. It would be across the board, impacting financial,
social and political sectors as well.
Still, almost every expert on this issue I've interviewed
or heard speak in recent months insists that it won't get that
bad. They say Mexico will come to its senses and adopt the
kind of overhaul that will give the country's state-run oil
company, Petroleos Mexicanos -- Pemex -- enough flexibility
to invest more of its profits in modernizing its operations.
That way, the experts say, it could become more like Brazil's
state-run Petrobras, regarded as one of Latin America's most
well-run companies.
At
the same time, Mexico's attitude about oil and Pemex's serious
systemic flaws don't inspire much optimism. The energy
proposals introduced last month by President Felipe Calderon
offer some modest reforms, but probably not enough to stem
the crisis. As Jeffrey Davidow, a former U.S. ambassador to
Mexico, put it diplomatically, "the steps they are taking
are not sufficient."
Calderon wants to allow outside investment in some areas of
transportation, storage and refinement. Those steps alone would
be of historic significance. Since the day in 1938 when President
Lazaro Cardenas nationalized the oil industry and created Pemex,
oil has become so sacrosanct that nobody outside Mexico can
help get it out of the ground, refine it, or even move it.
Such restrictions have led to unintended consequences -- Mexico
today is a gasoline importer, with four out of every 10 gallons
coming from refineries abroad.
Even
if the door is cracked open for foreign investment, there
may
be little to attract it without fundamental changes to
Pemex's business model. Pemex is weakened by mismanagement
and its monopoly status. Calderon's reforms would provide some
government oversight and performance reviews. Still, it seems
obvious that a more fundamental shift is required for a company
that "does not know how to behave in the private sector," said
Jorge Pinon, president of Amoco in Latin America during the
1990s.
In
particular, Pemex must learn to work collaboratively. George
Baker, an
energy consultant based in Houston, told me that
if Mexico is to consider deep-water exploration in the Gulf
of Mexico, it is going to have to have an attitude adjustment.
According to Baker, it took at least 30 oil companies, sharing
risks and expertise, to develop a similar area for the United
States. "The validity of the one-company model is coming
to an end," he said.
Pemex
also needs to reform its workers' union, which historian
Jonathan
C. Brown in an interview called "one of the most
powerful and most corrupt in Latin America." When Cardenas
nationalized the oil industry, he did it largely to protect
oil workers from abuse by foreign companies. But, as Jesus
Silva Herzog, former Mexican ambassador to the United States,
told me, "the union has abused Pemex" ever since.
Union reform is not even on Calderon's reform agenda.
The common wisdom now is that Calderon's reform package will
pass because it is modest and treads lightly. The hope is that
deeper reforms will become possible later. Yet with Mexico
holding legislative elections in July 2009, it is unclear whether
there will be sufficient political will to do much more in
the near term.
Oil, without a doubt, is crucial to Mexico's future. Considering
the significant long-term planning and development the industry
requires, Mexico seems to be running short of another important
commodity -- time.
Marcela
Sanchez is
journalist and syndicated op-ed writer with a column in The
Washington Post ( desdewash@washpost.com) . Petroleumworld
does not necessarily share these views
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