November 2018 – @alvaroriosroca – The elected president of Mexico, Mr. Andrés Manuel López Obrador (or AMLO), after having won the elections, has made a series of statements that we consider quite stubborn and mentally blinded regarding the actions he plans to take in energy matters. We believe that his vision is that of a true “nostalgic” Latin American and that he’s shooting himself at both feet with a double barrel shotgun.
If he starts what he proposes, surely millions of other Mexicans will want to migrate north. There is no reason to keep arguing: “So far from God and so close to the USA”. The lack of pragmatism of many regional leaders for decades has led to more poverty, less economic well-being and more Latin Americans having to flee desperately to the desired empire. We really applaud Mr. AMLO’s fight against corruption. That is very necessary and praiseworthy. But let’s analyze what he says about energy and what we believe will lead more Mexicans to poverty.
He points out that Mexico, at least during his six-year term, will not use the “feared” fracking, despite having plenty of resources, mainly in the north. This technique has revolutionized the hydrocarbons industry globally and has invigorated the North American economy. Between stopping import and rejuvenated oil and gas exports, the US improved its trade balance in no less than 16,500 billion dollars in 16 years. Impressive, in addition to the large amount of skilled labor that was generated.
The reason exempted by Mr. AMLO, environmental protection and pressure from some ambitious and lucrative NGOs. What we believe is that he also wants to concentrate conventional extractive activities on hydrocarbons in his native Tabasco (he wants to be a kind of hero of the south). Argentina, on the other hand, with fracking in Vaca Muerta wants to and is rescuing their fragile economy.
He also indicates that he will stop exporting oil, an important source of income for Mexico, with the excuse of taking care of oil for future generations. Mr. AMLO, do not be nostalgic, Norway, one of the countries with the highest per capita income on the planet, exporter of technology, also exports a lot of natural gas and oil.
Also, Mr. AMLO, understand that in the future the world is looking, very seriously, at electric vehicles, especially in private and light transport. While financing, building and modernizing refineries, oil and gasoline may become obsolete or lose value.
You are stubborn about building a new refinery and modernizing 6 existing ones so as not to import more gasoline. Mr. AMLO, understand that the business of hydrocarbons is not in the refining, but in the exploration and production of oil and natural gas (conventional or fracking). That is what Pemex’s scarce resources must allocate. Taking out a barrel that can cost between 6 to 40 USD per barrel and selling it at 60 or 70 USD per barrel is what makes the transnationals powerful. Do that with Pemex and associate it with private capital in many exploratory operations.
Mr. AMLO, Pemex is heavily indebted. The question is from where would you get the close to 10 billion USD needed for this refining adventure? Why not point to Pemex under corporate management to associate with private capital and be able to study the refineries options to the extent that these are sustainable and profitable.
You are stubborn about lowering gasoline prices in Mexico. Do not do that Mr. AMLO, let the market prices do their job, and if you don’t trust my judgement, ask your neighbors in the South how they would like to get rid of the perverse subsidies of the oil derivatives that overwhelm their weak economies (Argentina).
You are determined to disrupt the Energy Reform and review granted concessions, committed investments and annul the regulators. Mr. AMLO, associate Pemex with private capital, increase reserves, production (conventional and fracking) and study making refineries, but in the heat of the market and profitability and not of ideology and with independent and strict regulation.
Mr. AMLO, note how Petrobras is disinvesting, privatizing business units and associating with private capital. This after trying the madness you want to do with Pemex. Find out what happened with the construction of the Abreu refinery by Petrobras and the implications of overpricing, inefficiency and corruption.
Mr. AMLO, act looking to the 21st century and give Pemex management autonomy to associate and work with a vision of profitability, efficiency and away from politics and ideology. Learn from history and experiences and prevent its citizens from continuing to migrate to the empire.
*Former Hydrocarbons Minister of Bolivia and Current Managing Partner of Gas Energy Latin America.