Luis Rubio
In one of his famous long-winded harangues, President Lincoln tossed out a rhetorical question that applies to our pseudo debate on energy matters. “How many legs does a dog have if you call the tail a leg? Four”, he said in answer to himself. “Calling a tail a leg doesn’t make it a leg”. The world of energy has changed radically but we’re still stuck in 1938. The problem is that if we don’t shatter the inertia we risk economic collapse.
Until some years ago the discussion on oil and, in general on energy, was a combination of wishes, real or potential benefits and history. Depending on the economic, political, or bureaucratic perspective, some see oil as kick-starter for today’s development, others as a stockpile of wealth for an indeterminate future. Although time is not the sole factor in this controversy, it does constitute a determining factor in the political dynamic in this respect because it entails the entire thicket of myths, ideologies, interests, history and objectives enmeshed in this matter. The theme is complex owing to the admixture of issues: those not wanting to change because this would affect their interests, those seeing change as an opportunity and those opposing change as an ideological stance. That is to say, it verges on a religious discussion where what to render to Caesar and what to render to God are pitted against each other and the combination thereof is never felicitous.
Independently of the specific perspective, no one doubts the fiscal importance of the oil resources. The Mexican Government has become addicted to the revenue generated by the oil monopoly and this converts it into as interested an actor in the debate as any other. Thus, what is in dispute is not something objective but rather the product of feuds and clashes among interested parties. This circumstance has brought one reform after another to a standstill throughout recent times.
The Mexican energy debate has entertained a further peculiarity: it is altogether inward facing. Mexico is conceived of as an exceptional entity, isolated from the rest of the world. There are good reasons for this: PEMEX is a fountainhead of resources and the more it exports the greater the income. The equation was so simple and obvious that everyone essentially focused on attempting to resolve problems related with production. When the petroleum platform began to drop off, discussion was oriented toward where and how to exploit new resources and the conditions needed to make this possible. For example, in the case of extracting the energy resources presumably localized at great depths in the Gulf of Mexico, third-party participation was regarded as necessary whether due to the lack of the required technology or to the inherent financial risk. With advances or without them, for many years the discussion has been limited to the exploitation of petroleum.
The reality has changed and that old discussion has become absolutely irrelevant. Although issues concerning PEMEX’s efficiency, its productive processes or its costs structure continue to be relevant as it pertains to PEMEX itself, we are at present witnessing a sweeping change in the energy industry, of which PEMEX is just one more actor. And that’s the problem: the energy issue is no longer about PEMEX but about Mexico’s development within the context of the energy revolution that the world is experiencing, but above all in our backyard: the energy panorama in the U.S. and Canada has changed drastically, to the degree that it puts the viability of Mexico’s economy at risk.
For twenty years, the country has survived thanks to NAFTA. This instrument has permitted the Mexican economy to rely on it as an enormous source of demand and investment, ensuring the success, insufficient as it may be, of the productive plant. The country has become a formidable exporter of industrial goods and that has generated jobs and growth. Without NAFTA Mexico would have continued on in crisis. On the other hand, NAFTA is no more than an instrument and cannot be equivalent to the “philosopher’s stone” quested for by medieval alchemists to resolve all problems. There are many things that would need to be done to raise the economy’s productivity, improve the population’s human capital and level the playing field for companies and investors alike with the purpose of introducing competition into the marketplace. All this would allow these to advance, but would not sort out the new energy panorama that, in fact, could place the economy in check.
A revolution has suddenly caught the world of energy, first in Canada and more recently in the U.S. This has to do largely with a technology-driven revolution originating essentially in changes in the way to extract energy resources, which has permitted the production of gas and oil to rise dramatically. It started as a process nearly sotto voce that, at its initiation haltingly and more recently in a determined way, has had the dual effect of flooding the energy market and slashing its prices, above all of gas. The U.S., the prime importer of petroleum worldwide, is a stone’s throw from being self-sufficient. An energy scenario that we have not had to contend with before: one that nobody thought could be possible.
In this fashion, the political dynamic that encases the discussion’s context of the potential energy sector reform has changed radically. What doesn’t seem to be clear is whether the conscience exists among those responsible for the discussion on the nature of the revolution that’s in the works or of its implications for Mexico.
Three factors distinguish this revolution: first, the fact that the U.S. could be self-sufficient in petroleum. Second, natural-gas prices in that country are now a fraction of those typifying their competitors in the rest of the world (less than 3 dollars per BTU vs. more than 20 in Europe or China). And, third, energy costs are leading to the renaissance of the manufacturing industry in the U.S. Unless Mexico finds a way to supply natural-gas (or an equivalent source of energy) to its own industry at similar, competitive prices, the whole industrial platform –and the country’s economy- could be at risk.
The challenges are obvious: the oil that the U.S. and Canada produce is much lighter than Mexican oil, rendering it much more attractive for refining; our advantage in terms of the cost of manpower pales in the face of the difference in natural-gas prices: i.e., there’s an urgent need for cheap gas in Mexico. In a word, perhaps exaggerating, but not by much, unless Mexico acts decisively on the energy front, it could end up with no market for its oil and without and industry. This scenario suggests that the urgency for a profound reform of the energy sector is infinitely greater than what our politicians comprehend. They’d best update themselves on the double.
@lrubiof