Advancing towards energy security, understood as self-sufficiency in fuels and in energy production, is reasonable and desirable as a policy and as a long-term goal. However, President Andrés Manuel López Obrador’s idea of having state-run oil company Petróleos Mexicanos (Pemex) produce all of the gasoline consumed in the country will remain a fantasy in the foreseeable future. Pemex’s refineries do not have, and will not have, the capacity for that and Mexican crude oil is too heavy to optimize processing. They would have to more than double gasoline output, which is just not realistic without immense investments.
What can be achieved is gradual progress, with the support of private firms, towards functional and competitive energy markets, where Pemex and state-run electricity company CFE could have a dominant role and decreasing imports could be achieved. The risks of shortages due to external shocks can be reduced to virtually zero through hedging and agreements with suppliers.
The problem is that López Obrador´s concept of energy security seems to be linked to a reduction in private investment. The state-run energy entities are being called upon to do almost everything and, judging from what he said last Sunday, he does not even want contractors to get involved in refinery work. Energy Secretary Rocío Nahle says “energy security comes before business”, while noting that contracts awarded by the previous government have not been cancelled. That is true, but the government has created uncertainty regarding these contracts and has undermined confidence.
Contrary to what López Obrador and Nahle think, it is an obligation of governments to give priority to the competitiveness of private companies, because, if they do not, they will go bankrupt and there will be a domino effect in the economy, causing many jobs to be lost. Moreover, new jobs are not being created. Mexico’s Business Coordinating Council (known as CCE) estimates that investment in energy fell by 75 percent between 2018 and 2020, eliminating the opportunity to create 200,000 jobs. This year, things are much worse. There is no good explanation for the hostility of the government towards private business. If illegality in some businesses is their concern, they should apply the law.
Pemex and CFE, meanwhile, do not face bankruptcy, even though they are no longer competitive, since Mexicans end up subsidizing and financing their inefficiencies. The challenge for a modern government is to achieve competitiveness throughout the economy, because that is what provides wellbeing and energy security. In Saudi Arabia, China, Colombia and other nations there are many examples of how national oil companies can be turned around, based on criteria of economic rationality and profitability. But López Obrador wants a corporativist Pemex, without any kind of thorough restructuring that could make it competitive. It is the perfect recipe to sink the economy and make the country go broke.
Many Mexican government officials and ruling-party politicians seem to think that the profitability of refineries and power plants is not important. However, when Pemex and CFE report their results, as they will this coming Friday, economic reality hits them in the face. Economic efficiency should be top priority. There is no other option.
There is no good in complaining that past neoliberal governments were to blame for all the industry’s problems (even if they were to some extent, especially for the corruption in Pemex), but they did at least profess coherent economic principles. Now, doing business is being inhibited for ideological and political reasons and that is precisely how not to achieve energy security.
The López Obrador government, far from providing Independence and sovereignty, is pushing Mexico towards depending on the strength of the U.S. economy in every aspect. Mexico is now living on the revenues from remittances, from tourism and from exports of manufactured goods and of crude oil that cannot be processed internally (we continue to export two out of every three barrels produced and it is hard to see that this might change anytime soon). The domestic economy is failing, people cannot find employment and are thinking of emigrating again. Poverty is being perpetuated. So, what national security? What energy security?
* 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.
