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National independence in oil production

National independence in oil production

Written by José Luis Apodaca

 

Given the current US President’s plan to tax products imported from Mexico, it is a good idea for us to achieve self-sufficiency in oil refining in the short term in order to reduce crude oil exports and imports of refined products. This would give us significant economic benefit and greater energy independence.

 

The hydrocarbons trade between the two nations has been substantial. In 2016 we exported 600,000 barrels per day (MBD) of crude oil to the United States at international prices. We also sold 186 MBD of petroleum products, mostly fuel oil, at a very low price. We imported 800 MBD of gasoline that same year, valued at 19 billion dollars (MMD), with a price differential on crude oil of US$29 per barrel. (It should be noted that we exported another 600 MBD of crude oil to other regions in Asia and Europe)

 

The first action proposed would be to restore production by Mexican refineries, to at least the level achieved in 2014, or 1,385 MBD, representing an 87% efficiency above installed capacity. In 2016 production was reduced to 1,120 MBD (70%), which forced the country to import an additional 265 MBD of gasoline for the year. This involved an extra refining expenditure of US$2.8 billion. The CEO of Pemex would assume responsibility for improving the efficiency of Mexican refineries in the short-term, and the Federal Government would provide him with the necessary resources. They would also have to explain the reason for the fall in production.

 

Another strategic action to achieve energy independence would be to build a high-tech refinery to produce 300 MBD of gasoline, which would require an investment of 15 billion dollars and which could be built in 3 years, taking advantage of the engineering already developed for the Bicentennial Project. It would be hard to understand how a federal government whose annual budget is 5 trillion pesos could not allocate 100 billion  pesos in each of the three years. This represents 2% of each year’s budget and it has a very high rate of return. The impact on the local economy and job creation would be crucial for the country’s growth.

 

The recent Energy Reform opened the exploitation of Mexican oil resources to foreign investment without restrictions and with very high profits. It was a very important concession made by the Mexican government to the big American oil companies. President Trump does not seem to know that and he’s not offering even the slightest reciprocity. It’s time to implement nationalist measures like the ones outlined above.