López Obrador plot shocks the Mexican oil industry: WSJ

The presidential candidate for the “Juntos Haremos Historia” coalition, made up of the Morena, PES and PT parties, Andrés Manuel López Obrador, plans to head the newly opened energy sector in Mexico, warns the American newspaper The Wall Street Journal.

Journalist Robbie Whelan says he has confused investors by asking for a temporary freeze on new private investments in oil exploration and production.

That his intention is to move the federal expense of exploration and production to the refineries, which according to critics could have the most dramatic consequences for the Mexican economy and the US refineries along the Gulf Coast of the United States.

In his article published this Monday, López Obrador wants to stop completely the exports of crude oil – a primary source of income for the country – because, according to him, Mexico has become too dependent on the US to obtain refined gasoline. , as stated by Rocío Nahle, Morena’s legislator, whom the candidate has named as his Secretary of Energy, should she become President.

“We are going to change the energy policy of this country, that is a fact,” Nahle said in an interview with the Wall Street Journal.

Remember that energy analysts, rival politicians and former employees of the state oil company Petróleos Mexicanos, or Pemex, have said that López Obrador’s plan would throw the energy-dependent economy back in the early 1970s.

That is, before they made the key oil discoveries and when the country relied on a closed economy in industries such as oil, steel and agriculture.

The refinery plan could also have broad fiscal consequences for Mexico, he says, which would lead to a potential budget deficit.

For the United States, which buys half of Mexico’s crude exports, it could force refineries along the Gulf coast of that country, which depend on Mexican crude, to look elsewhere for these operations.

The newspaper states that López Obrador has a long history of opposing the opening of Mexico’s oil industry to foreign and private investment.

In 2013, he directed thousands of protesters to protest against President Enrique Peña Nieto’s plan to allow private investment in exploration and production, describing the idea of ​​sharing the benefits of Mexican natural resources with foreign oil companies in an affront to the National sovereignty.

“It’s common sense, why do not we add value to our resources, why do we have to buy gas?” Said López Obrador last Friday. “In the middle of the next six-year presidential term, we will stop buying gasoline, we will produce gasoline in Mexico.”

Robbie Whelan indicates that Lopez Obrador’s main rivals are in favor of keeping the energy sector open and focused on exports.

During the last decades, successive Mexican governments have invested their limited dollars in the exploration and production of crude for export, paying less attention to subsequent activities such as refining. The reason is simple: the reward for finding crude oil is large, while refining has very small margins and requires massive investment.

The importation of gasoline has emerged in the last decade as the demand for car fuel grows and the six existing refineries in Mexico have become less productive, affected by inefficiencies, unexpectedly closed and damaged by natural disasters.

Mexico imported 571 thousand barrels of gasoline per day in 2017, an average rate that was 59 percent higher than in 2013. Meanwhile, 2017 was the worst year for national gasoline production in more than a decade, with only 257 thousand refined barrels per day, 44 percent below the previous decade.

Pemex’s six refineries operated at an average capacity of 48 percent last year, the lowest level recorded.

López Obrador wants to build one or two new refineries, which would cost around six MMDD each and would take roughly three years to build, said Nahle, an oil engineer who worked at Pemex’s petrochemical plants in the 1980s.

In addition, he said he wants to improve the six existing refineries in Mexico, making them work between 70 and 95 percent of their capacity in nine months.

“If you have the money to spend on refining or exploration and production, why would not you spend it on exploration and production, where you would earn much more money?”, According to Duncan Wood, director of the Mexico Institute of the Woodrow Wilson International Center , refers the article.

“Clearly the calculation is political,” Wood said.

“They want new and bright plants on the coast with which the President can stand and say, ‘Look, we’ve done this.’ “López Obrador’s plan would probably take away the resources needed to protect Mexico’s declining production of oil for export. percent of the federal budget. Mexico exported 20 MMDD of crude oil last year, at an average of 1.17 million barrels per day, about half of it to the US Oil export volumes have fallen more than 30 percent in The last decade, given that many key oil fields in Mexico are empty.

The Wall Street Journal indicates that in order to compensate for this decline, the country opened its export and production to private investment in 2013. Since then, the country has taken held eight auctions and granted 91 exploration and production contracts, but many of these will take years or even decades to harvest significant amounts of crude The cost of upgrading and building new refineries is likely to be much higher than the campaign estimates, analysts say.

The price of a new refinery, of between 10 to 12 billion, is likely to be higher than what López Obrador’s campaign is projecting, according to Gonzalo Monroy, an independent energy consultant in Mexico. Mexico built last a new refinery, its huge Salina Cruz complex in the state of Oaxaca, in 1980. Recent updates at the Pemex refineries in Minatitlán and Cadereyta were plagued by excess costs. One obstacle to improving productivity in the refinery is the union of 130 thousand Pemex workers, whose efficiency is well below international standards.

“I would have to carry out important reforms and dramatically modify existing labor practices, otherwise it is not worth modernizing the refineries in Mexico,” said Adrián Lajous, who ran Pemex from 1995 to 1999. Finally, the plan makes sense if Mexico can produce gasoline more efficiently than what it costs to bring gasoline from Texas. “You’re basically asking Mexico … to compete with the most efficient oil refineries in the world, which are those on the US Gulf Coast,” said Pablo Medina, an analyst at the firm. Houston’s Welligence. “Just because I’m energetically independent, I’m not sure the price is right.”