The heavy oil plan of the Mexican president
When I lived in Mexico City, I walked past the Petroleos Mexicanos building on my way to meetings.
I used to always think of the tall, imposing building as a physical representation of a centralized industry that the Mexican government had controlled since Mexican President Lázaro Cárdenas nationalized the energy sector in 1938.
Over the past 30 years, there have been intense discussions about the privatization of PEMEX and the authorization of foreign investment in the Mexican energy sector. This was finally accomplished under the administration of President Enrique Peña Nieto (2012 to 2018). Foreign investment in the country’s energy sector soon followed. Strategies have also been developed to diversify into renewable energy sources.
However, when Peña Nieto’s successor, Andrés Manuel López Obrador, took office, he almost immediately set out to reverse this historic reform. He has taken steps to discourage foreign investment in the country’s energy sector and is pushing the country away from renewable energy and towards more traditional fossil fuel production. This is contrary to the direction that most nations of the world are taking to reduce their carbon footprint.
Now, AMLO is aggressively pushing Mexico to achieve oil self-sufficiency by 2022. Its plan to achieve this is based on cutting the world’s crude oil imports in half by 2022 and completely by 2023. It also proposes the construction of a new refinery. , and investing $1.3 billion in the country’s six existing refineries. Additionally, Mexico purchased a 50% stake in the Deer Park refinery in Houston, Texas. AMLO’s plan is so ambitious that experts question whether it is viable.
Mexico is one of the largest crude oil producers in the world, but ironically it imports most of the refined fuels it consumes, such as gasoline and diesel, from other countries. The United States alone is the source of 60% of Mexico’s supply. The question is whether Mexico can increase production of refined fuels in such a short time. The country has nearly 130 million citizens who are served by the six existing refineries producing about 1.64 million barrels per day. To put it into perspective, Texas has 29 million citizens and the state has 27 refineries producing 5.1 million barrels per day. Additionally, US refineries routinely operate at around 90% capacity. By contrast, Mexico’s existing refineries are operating at 40% to 50% capacity, down from a peak of 75% in 2013, due to much-needed upgrades.
The irony is that AMLO has reduced foreign investment in the country’s oil industry, the very type of investment Mexico needs to modernize its production base and build new refineries. PEMEX has more debt on its books than any major oil producer in the world. It has a history of mismanagement and corruption that has hampered its efforts to increase fuel production, in addition to a bloated bureaucracy that has proven ineffective. Another issue is, as it cuts crude oil exports to the world over the next two years, how does it make up for the billions of dollars in lost revenue those exports generate, as it attempts to increase the production of refined fuels?
The increase in the production of light crude oil, with which refined fuels are produced, is another challenge that the administration of AMLO will have to face. If Mexico does not increase its reserves of light crude, it will not increase its production of gasoline and diesel. This is as big a challenge as renovating existing refineries and building new ones.
Even if all the stars align for AMLO’s oil self-sufficiency plan, the big question is, will it have time to implement and realize its success? His presidency ends in September 2024. That doesn’t leave him much time to make his plan work. It also has the effect of putting all the eggs in the country in one basket when it comes to refined fuels.
AMLO has not been enthusiastic about renewable energy, and this option will most likely be pushed into the background as his administration attempts to implement its plan.
It makes sense that a major crude oil producer like Mexico is trying to increase its self-sufficiency in the production of refined fuels. In fact, one could argue that a plan like AMLO’s should have been implemented many years ago.
However, a reluctance to welcome foreign investment in its oil sector, combined with the challenges of PEMEX’s huge debt, the need to increase light crude production and the limited time remaining in power, appears to make the plan a success. from AMLO a long shot.
Jerry Pacheco is the executive director of the International Business Accelerator, a nonprofit business counseling program of the New Mexico Small Business Development Centers Network. He can be reached at 575-589-2200 or [email protected]