President Andrés Manuel López Obrador and his government talk continuously about energy self-sufficiency, abuses by fuel distributors, controlled maximum prices of gas, the creation of state-run distributor Gas Bienestar, new refineries, a hypothetical pipeline in the Isthmus of Tehuantepec, but it is as if all of this were a smokescreen for not solving deep-seated historical problems in Mexican energy policy.
Let us look at policy on gas. Mexico has vast gas reserves, yet it imports about 70 percent of its consumption, both of natural gas and liquid petroleum gas (LPG). Production has been falling sharply for 12 years. A large part of the reserves are to be found in basins in the north and north-east of the country, such as Burgos, Salinas and Tampico-Misantla, where there is almost no investment now in gas production.
Worse still, in the south-east of the country, a large part of state-run oil firm Pemex’s production is wasted through flaring and venting. In fact, the amount that is wasted in the south is greater than the production in the north and north-east. The environmental impact of these emissions in grave, because methane has a powerful greenhouse gas effect, 22 times greater than that of carbon dioxide emissions. We contribute brutally to global warming.
So, there are losses of enormous volumes, not only of methane (which is called “natural gas”), but also of the streams with higher calorific value, such as propane and butane (which are known as LPG), which would cover much of the country’s industrial and residential demand for gas.
Moreover, historically LPG has been wasted in Mexico, as it has been sold as the prime option for heating water and cooking, because the authorities and Pemex have been slow or absent in promoting infrastructure for transporting and distributing natural gas. LPG should be used to develop activities of greater added value, such as the chemical industry.
Why do we waste so much gas? Ironically, it is because it has been cheap enough for us not to value its real worth. For economic reasons, Pemex has applied a policy of developing oil, but not gas. Two decades ago, the price of natural gas reached US $14 per million British thermal units (Btus); today, its price is US $3.90 per million Btus. Similarly, taking peso devaluations into account, LPG today is much cheaper than in previous periods.
Despite the energy policy errors that are implicit in all of the afore-mentioned, the reason Mexico has not suffered shortages is that the United States has made good on our energy deficits. It supplies 70 percent of the country’s energy demand at prices which are very favorable in global terms.
Obviously, none of these major problems will be solved by setting máximum gas prices by decree or by having Pemex get involved in retail gas sales. Gas Bienestar will be a company with very low profitability and will sell imported LPG. So, where is the self-sufficiency?
In the search for real solutions, a detailed evaluation is needed on what the options are for the State or for private investors to explore and produce gas domestically, applying best practices and without flaring nor fugitive emissions. The evaluation should determine how, where and to what extent Mexico should produce more gas, reconciling social and market requirements with an environmental policy that is sensitive to climate change.
For now, the government, without giving any explanations, has discouraged the option of having Pemex or private firms produce gas in the north of the country, whether it be through fracking or using conventional drilling technologies.
Official spokespersons argue that new energy regulations seek to correct market failures, prevent social problems and that it is not a specialized, technical matter. But policies should begin by attending to the most essential problems and should not be lacking in rigorous analysis that takes economic, technical and environmental variables into account, because there is a widespread impression that many recent energy policy decisions have been improvised, impulsive and incoherent and will end up contributing to the existing disorder and being expensive and damaging, rather than beneficial.
* David Shields is an energy industry analyst. His e-mail: david.shields@energiaadebate.com A Spanish version of this Op-Ed appeared first in Reforma’s newspaper print edition.
