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Book Launch of Pozo de Pasiones: The Energy Reform Debate in Mexico

November 14, 2008 // 8:00am10:00am
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Oil's strong grip on the Mexican national psyche frustrates a policy-focused discussion on energy at a time when the country's oil production is declining precipitously, when federal spending remains largely dependent on oil revenues, and when the government oil monopoly is unable to exploit deep-water reserves, speakers said at the book launch of Pozo de Pasiones: the Oil Reform Debate in Mexico, jointly published by the Wilson Center's Mexico Institute and the Red Mexicana de Energia (Mexican Network on Energy).


Author Rossana Fuentes-Berain, a journalist and professor of international studies at the Instituto Tecnólogico Autónomo de México (ITAM), said Mexico suffers from a national "oil addiction," nurtured by the country's historically mercantilistic approach to the exploitation of its oil wealth. She compared Mexico to "petrocracies," such as Venezuela, where the government's dependence on oil revenues and the clout of the government oil monopoly hold inordinate political influence. At the same time, the debate on energy-sector reform has largely become a quarrel between ideological factions, preempting a policy-focused discussion on ways to increase energy capacities and meet growing domestic needs. Nevertheless the cross-partisan passage of legislation in November 2008 to institute better administrative practices and accountability standards in government oil monopoly Petróleos Mexicanos (Pemex) tentatively shows Mexico can hold a debate on oil that rises above this bickering, she indicated.

Fuentes-Berain said oil has been a curse for Mexico. The false promise of eternal oil wealth has led to government policies that have overleveraged public finances, and a traditional over-reliance on oil revenues in the federal budget has discouraged the maturation of other revenue streams, such as those to be obtained from improving the country's tax base. Complicating the energy-reform debate, the government's monopoly control over oil resources is perceived by many to be an important expression of national sovereignty, a Mexican birthright not to be tampered with by allowing joint ventures that would be perceived as ceding that control, even when those ventures are necessary to exploit deep-water reserves in the Gulf of Mexico.

Discussant Duncan Wood, acting chair of International Relations at ITAM and the coordinator of the Red Mexicana de Energia, agreed that oil remains a cornerstone of nationalist mythology and noted that leaders have framed the exploitation of deep-water reserves as part of a national adventure story.

In a presentation on the Mexican energy reform debate, Wood noted the following:

Mexican Energy Sector
• Mexico is the only oil exporter in the world that bars any form of private investment; even the Cuban oil monopoly allows private investment.
• Mexican oil production is highly dependent on its Cantarell oil field, whose output has peaked.
• Unless Mexico makes improvements to increase output at on-shore or shallow-water deposits, decreasing its dependence on Cantarell, it will soon become a net oil importer.
• Despite its great deep-water reserves in the Gulf of Mexico, only through joint ventures can Mexico fully exploit these deposits.

Mexican Energy Reform Legislation
• The legislation passed by the Mexican Congress in November 2008 promotes the following:
• Better corporate governance and administrative best-practices in Pemex
• More rigorous country-of-origin and domestic content requirements, which could have multiplier effects and help create a true domestic energy-services industry
• Greater transparency and accountability of Pemex through the creation of an independent regulator, National Commission on Hydrocarbons
• Pemex's ability to contract debt more freely

Wood considered "highly optimistic" government projections that the November 2008 legislation would lead to significantly boosted output of 8 million barrels/day, and he questioned why the government was setting such high expectations. In closing, Wood noted that Mexico has tremendous promise as an alternative energy producer, stressed the potential benefits from bi-national collaboration with U.S. states on certain energy projects, e.g. electricity transmission and liquefied natural gas distribution, and faulted the government's overemphasis on corn as an ethanol input when there exist more efficient feedstocks.

 

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