Mexican Energy Official Against Adjusting Oil Exports

Text of report by respected Mexican business newspaper El Financiero website on 7 July

[Report by Lizbeth Pasillas: Kessel: Inadvisable To Decrease Petroleum Exports]

In the opinion of Energy Secretary Georgina Kessel Martinez, it would be inadvisable to adjust the current crude oil export volume of Mexican Petroleum [Pemex] -now that prices are high -because given the country’s current refining capacity, there would be no way to satisfy total domestic consumption of petroleum products, which are supplied by imports today.

During an interview with El Financiero, the official commented that Mexico produces around 2.8 million barrels of oil per day, refines 1.4 million barrels, and exports the rest.

She explained that if Mexico processed crude oil to cover its domestic consumption, in the next 20 years the volume of 3 million barrels per day would barely be enough to cover the domestic needs.

“In the next 20 years, we need the three reconfigurations of refineries that we’re lacking and five or six new ones -the normal capacity of each one is 300,000 barrels per day. Our production volume would barely be enough to cover domestic consumption. That is the magnitude of the challenge,” she indicated.

“We must decide the cause of the problem. Should we reduce domestic consumption? Should we stop exporting? I’ve heard that, and it’s a decision that might be made, but our domestic consumption is growing and to meet it we need imports. If we stop exporting, how will we cover our domestic consumption needs? I believe that because of domestic consumption, it would be inadvisable for us to make an adjustment in our exports,” she added.

When asked about the possibility that the federal government’s energy reform proposal might not be approved to allow the private sector to invest in refining or to allow the existence of incentive contracts -which would encourage payment based on performance – Kessel commented that President Felipe Calderon’s proposals have several objectives, such as energy security for current and future generations, reducing Mexico’s dependence on the rest of the world for the energy it consumes, strengthening the state leadership with regard to the resources that we have, and having a strong, transparent, accountable Pemex.

As Soon As Possible

When asked about the possibility that there might be new proposals to hold consultations or more debates after the debate currently taking place in the Senate, the head of the Sener [Energy Secretariat] affirmed that it is urgent that conclusions be reached and decisions be made regarding the reform that the sector needs, because in the last four years Pemex stopped producing 600,000 barrels per day, and the decline intensified in 2008.

She explained that because of the drop in production, the country will stop receiving 227 billion pesos [22.008 billion dollars] this year, a figure that will increase if oil prices remain high and production continues to drop. She also said that inefficiencies cost almost 2.5 billion pesos [242.395 million dollars] per year, because oil is transported in less efficient ways and not by pipelines (the federal government’s energy reform proposal calls for the participation of private capital in investments in pipelines, storage, and distribution).

“The Congress of the Union will have to decide what weight to give those results (the Federal District’s public consultation),” she indicated.

[Lizbeth Pasillas] In the next ordinary period, it will be difficult to discuss the 2009 Federal Expenditures Budget [PEF] and the energy reform.

[Energy Secretary Georgina Kessel] I’m not too worried about time periods. The important thing is that we sit down to work and make decisions. The relevant thing is to make sure the decisions are made as soon as possible, so we can stop losing more and more revenue and the revenue can be used for education and health and to reduce poverty levels.

[Pasillas] By being considered along with the PEF, could the energy reform be pushed into the background?

[Kessel] I might be speaking for the legislators, but I’m convinced there’s a widespread feeling, first of all, of awareness of Pemex’s problems, and also of responsibility on the part of the legislators. They know the urgency that exists with regard to making decisions related to the hydrocarbon sector. It’s an important issue for the country, and there’s an awareness of that.

Georgina Kessel has faith in the sense of responsibility of the legislators, but she indicated that an energy reform that “falls short” would not guarantee the energy security of future generations.

What should the reform contain, at the very least? Kessel said strengthening the leadership of the state, creating appropriate regulatory mechanisms, insisting on transparency and accountability in the parastate company, corporate management, and progress on the tax system.

The official affirmed that the debate in the Senate has been very useful because different points of view have been presented and President Felipe Calderon’s proposals have been analysed more thoroughly. She explained that it has been demonstrated, in the Senate and at the UNAM [National Autonomous University of Mexico], that the proposals comply with the existing constitutional framework, and it has been made clear that it is essential that something be done with crude oil production and with better technology, and that things cannot remain as they are now. “The proposals have already been presented; now it’s up to the Congress of the Union to determine what should be included and in what way,” she affirmed.

[Pasillas] Are you aware of reform proposals from the PRI [Institutional Revolutionary Party] and the PRD [Party of the Democratic Revolution]?

[Kessel] I’m not aware of any proposal or document as such; I have no knowledge that anything like that exists. That’s up to each of the legislative factions. I think it’s important, if proposals are presented, that they be included. I hope they take into account the need to strengthen Pemex so it can face the challenges ahead.

Originally published by El Financiero website, Mexico City, in Spanish 7 Jul 08.

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