This is good news for Mexico’s long-beleaguered state-owned oil company, Pemex, but not such good news for the US’ refinery industry.
Last Thursday, Mexican President Andrés Manuel López Obrador made another public statement that won’t have gone down well in Washington’s corridors of power — or for that matter Texas, Louisiana, California or any other US state with a big refinery. Lopéz Obrador — commonly referred to as AMLO — said that Mexico will stop selling crude oil abroad and will only extract the oil that it needs to produce the gasoline the country requires. It is all part of the president’s quest for energy self-sufficiency.
AMLO also claimed that Mexico’s long-suffering state-owned oil company Petróleos Mexicanos (Pemex) is finally putting its decades-long crisis behind it
“Pemex is recovering from a crisis inherited from many years of neglect, because the goal of the previous neoliberal governments was for Pemex to go bankrupt in order to privatize oil… to ruin Pemex and the Federal Electricity Commission (CFE ). Fortunately, the people of Mexico said enough was enough. The change has occurred and we have dedicated ourselves to strengthening Pemex and the CFE … and we have already pulled Pemex out of the hole it was in.”
That s somewhat debatable. It’s true that in July this year Pemex’s average daily crude output reached 1.772 million barrels — its highest level since September 2018. It’s also true that in 2020 Pemex finally put an end to an unbroken 15-year rough patch of sliding production. It reported an average daily output of 1,705 million barrels. But the margin was tiny, just 4,000 barrels per day. And according to a Bloomberg report, admittedly featuring lots of unnamed sources, Pemex has apparently taken to inflating its numbers by measuring crude production at a warmer temperature than government regulators:
Pemex gauges hydrocarbon production at 20 degrees Celsius (68 degrees Fahrenheit), rather than the National Hydrocarbons Commission’s 15.56 Celsius standard, said the people, who asked not to be identified because the information isn’t public.
When combined with Pemex’s longstanding practice of counting a light oil known as condensate in its overall crude tally, the temperature bump swelled output figures by the equivalent of about 16,000 barrels a day going back to the start of 2020, the people said.
Regardless of the veracity of Bloomberg’s unsourced allegations, one thing is clear: AMLO’s quest for energy independence is gaining momentum. And it is almost certain to have raised the hackles of some very large business interests north of the border.
Bad News for US Oil Giants and Refiners
In February, a fierce winter storm in Texas resulted in days of crippling outages, not only in Texas but also large swathes of Northern Mexico that depend on natural gas supplies from the US for its electricity. The chaos wreaked by the storm, including astronomic energy bills, were a stark reminder of the risks of depending too much on one’s neighbors for energy. Prices for imported gas that Mexico uses to generate power spiked 5,000% during the crisis, Lopez Obrador said.
“What is the lesson in all of this? We must produce,” he said, referring to gas, but also to gasoline and diesel. “We are seeing that we must seek to be self-sufficient.”
In April, Mexico’s lower house of congress passed AMLO’s proposal to tighten state control over the country’s fuel market. The bill now just needs to clear the senate, where the ruling Morena party and its allies have a majority. If approved, the initiative would overturn large parts of the country’s hydrocarbon law. Most importantly, it would expand government control over fuel distribution, imports and marketing. It would allow authorities to suspend permits based on national or energy security, as well as let Pemex take over facilities whose permits have been suspended.
In May, AMLO announced that Royal Dutch Shell had agreed to sell its controlling interest in the Deer Park refinery in Houston, Texas to its partner Pemex for $596 million, making Pemex the sole owner of the refinery. This should significantly reinforce Pemex’s refining capabilities, reducing its dependence on US imports.
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