On March 18th, it will be 30 years since the Azcapotzalco, Mexico City, oil refinery was shut down for air quality and public health reasons. The announcement came during the ceremony on the 53rd anniversary of the nationalization of Mexico’s oil industry, under the watchful eye of the statue of General Lázaro Cárdenas del Río at the corporate headquarters of state-run oil company Petróleos Mexicanos.
The people of Azcapotzalco celebrated with a street party and mariachis. Engineers at Pemex –some of whom are now advisors to the current energy minister, Rocío Nahle– remember it as a fateful day. According to them, a neoliberal government violated Mexico’s oil myth, while today a nationalistic government of the people is building a new refinery at Dos Bocas, in Tabasco state. The former watched over the health of the population, while the latter is focused on energy self-sufficiency. These are the contradictions of our time.
In the 1990’s, there were advances in Mexico’s refining industry. The government of Carlos Salinas de Gortari put into effect a modernization policy which greatly improved the quality of fuels produced in Mexico. Pemex bought a 50 percent stake in a foreign refinery, by associating with Shell, in the Deer Park, Texas, refining partnership. This is still a key facility for processing Mexican crude oil. All of this, without yielding sovereignty on Mexican oil in the negotiation of the North American Free Trade Agreement (NAFTA).
Everything has been deteriorating since then. Listening to Mexico’s oil narrative, one would think Deer Park did not exist. It says that Dos Bocas is Pemex’s seventh refinery, but in fact it will be the ninth, because Azcapotzalco existed and so does Deer Park. Colombia, Brazil, even Venezuela, boast about the presence of their state oil company abroad. Mexico does not.
Today, there are environmentalists who demand the closure of the Tula refinery, in Hidalgo state, and also the Salamanca, Madero and Cadereyta facilities. They are among the biggest emitters of sulphur dioxide in the world, as well as other toxic and greenhouse gas emissions. Heavy fuel oil from the refineries, which is turned into electric power by the Federal Electricity Commission (CFE), produces acid rain and PM2.5 particles, which contribute to premature deaths.
There are economic reasons in favor of shutting down these plants. Recent official data show that the six refineries in the country lose over US $12 for each barrel of crude oil they process. They account for 45.6 percent of the MXN $481 billion that Pemex lost last year, literally putting the company and the country one step away from insolvency. Moreover, excess output of fuel oil in heavy oil processing is now so great that Pemex exports it almost for free to Asia, when it cannot sell it “for a dollar per barrel” to the CFE. Pemex’s finances will take an additional hit from this in 2021.
Those who promote Dos Bocas have alternative data. They say that if crude oil is priced at US $40 dollars per barrel or more, the project should be profitable. That would perhaps be true, if the Finance Ministry and many inefficiencies were not part of the equation. But Pemex is a monument to improductivity in many ways. It has 10 workers at its refineries for every one that works in similar plants in the United States.
The López Obrador government wants the country to be self-sufficient in gasoline. But it does not want to acknowledge the inefficiencies of a monopoly that caused dependency on imported gasoline in the first place. It also seems unaware that electric vehicles and other technologies will displace fossil fuels.
The Mexican government, insensitive to the aspirations of new generations, imposes the ideas and the ideology of a tiny, non-representative group of politicians and technicians in energy policy. Air quality in Mexico City would likely be much worse today, if the Azcapotzalco refinery had not been shut down in 1991. Society does not want more pollution. For that reason, very different policies are needed to deal with Mexico’s energy challenges.
FOOD FOR THOUGHT: Over the past 15 years, governments in turn have frequently announced the discovery of new “giant” oilfields. Three have been announced in this administration alone. Yet every year, Mexico’s crude oil output continues to fall. Couldn’t it be that something is not true or is not functioning properly?
* David Shields is an energy industry analyst. His e-mail: email@example.com A Spanish version of this Op-Ed appeared first in Reforma’s newspaper print edition.