Thread: Energy Security In Mexico: Problems and Implications

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Energy Security In Mexico: Problems and Implications




By Jude Clemente

Energy Security In Mexico: Problems and Implications In contemporary societies, energy security has become the cornerstone of national security. Access to reliable and affordable energy supplies is fundamental not only to national defense, but also economic growth and political stability. Thus, threats to a nation's energy infrastructure have far reaching implications for the entire socioeconomic system.

Mexico provides an important example of how threats to the energy security of a major oil producer not only have broad ramifications for the nation itself, but for the United States and the rest of the world as well.

Why Mexico's Energy Security is Important

Oil has rapidly become Mexico's most precious natural resource – accounting for about 27% of total exports in 2006 compared to only 8% in 2000.

1.-Oil export revenues support the Mexican economy – state-owned Petróleos Mexicanos (Pemex) contributed $79 billion in taxes and royalties to the Mexican government. Oil revenues usually constitute approximately 40% of the Federal budget.

2.-Petrodollars are being used to develop a middle class as well as lift millions out of poverty. Social programs in Mexico have been dramatically expanded through billions of dollars in oil income.

3.- Problems in Mexico's oil sector would disrupt both the U.S. and world markets. Mexico has been a consistent top-three supplier to the U.S. and supplies about 4% to the increasingly inelastic global supply chain.

With the 2004 peaking of Cantarell, the second most productive oil field in the world and the source of half of Mexico's oil, national production faces terminal decline. The ongoing decrease now confronting Mexico has been widely documented in the energy industry and has become part of the U.S. Energy Information Administration's (EIA) International Energy Outlook 2008 . Further, energy security is the looming shadow over the scene. The rapid decline in Mexico's proven oil reserves, about 75% since 1997, is taking its toll and scheduled deliveries to several refineries in the U.S. were cancelled in July.

The literature, however, has been lacking in pieces detailing how Mexico's production problems are exacerbated by the absence of a comprehensive national security strategy to safeguard the country's energy infrastructure. Pemex energy facilities are soft targets for the domestic terrorist group that has already attacked it as well as those international terrorist networks that have threatened it. The present analysis focuses on four overarching dimensions to Mexico's increasingly worrisome energy security situation: 1) the spectrum of expanding vulnerability 2) lack of security from institutional lag 3) external threats and 4) internal threats.

1. The Spectrum of Increasing Vulnerability

As the relatively concentrated 70-square-mile Cantarell oil field falls into terminal decline, energy systems more geographically dispersed and more susceptible to attack will be relied on to compensate, namely the Chicontepec Basin. Figure 1 illustrates this onshore oil region, northeast of Mexico City, that holds about 54% of Mexico's non-Cantarell known reserves. The area will be difficult to protect because it stretches more than 2,400 square miles. Further, because of complex geology, production projects at the Basin will need to be especially infrastructure intensive. Overall, the task of building and protecting an entire network of pipelines and processing facilities appears overwhelming for a nation without a coherent energy security plan.

Even now, Mexico faces a challenging pipeline security challenge of over 17,000 miles of oil and 8,235 miles of natural gas pipelines (see Figure 1). The country's energy infrastructure needs a desperate upgrade. Over the past decade, Pemex has slashed its maintenance expenditures throughout the country. In 1997, the company had a budget of $2.7 billion for maintenance; in 2007 the budget was only $1 billion. Funding decreases have become the norm at Pemex because the Federal government increasingly siphons off energy revenues to support social programs.

On other fronts of vulnerability: (a) it is likely that the same corruption that has prevented the country from controlling the drug violence within its borders will continue to prevent it from effectively protecting its energy infrastructure, (b) the financial crisis that Pemex currently faces (over $111 billion in debt as of April 200 will further degrade Mexico's ability to respond and protect and (c) state-owned Pemex makes an attractive target for a wide range of dissatisfied Mexicans because damage to the state monopoly directly affects the Federal government.

2. Lack of Security From Institutional Lag

Mexico has not followed the post-September 11th global path of state reform on national security. The country has fallen behind other major oil producers (e.g. Saudi Arabia) in protecting its energy installations. The political infighting that has been a constant the past eight years in Mexico remains a major reason the country has been unable to articulate any cogent strategy aimed at protecting its energy system. Mexico exists in a political and institutional vacuum far removed from its North American allies.

Many of Mexico's security issues stem from the political differences that continue to divide the country. In 2000, conservative Vicente Fox, of the National Action Party (PAN), became president, ending the Institutional Revolutionary Party's (PRI) seven-decade uninterrupted rule. Under Mexico's Constitution it is the responsibility of the President to conduct foreign policy, but Fox left it up to a member of his cabinet who viewed the military as the driving force behind his national security plan. Military leaders were reluctant to comply, and new institutional arrangements by the Fox administration created rifts within the Federal government. Fox did not have a majority in either Mexico's Chamber of Deputies or the Senate, and his administration and the opposition in Congress consistently battled over political reforms. Protecting the country's energy infrastructure quickly became an afterthought.

The following quotes from a wide-ranging group of Mexican security and energy analysts illustrate that the country has major security issues when it comes to protecting its energy infrastructure:

“Nobody's in charge of the pipeline system. Nobody is accountable for itâ€

<img src=http://online.wsj.com/public/resources/images/NA-AH703_MEXOIL_20060208202012.gif>

http://online.wsj.com/public/resources/ ... 202012.gif

It appears the Wall Street Journal has the Aguas Frias and Chicontepec field locations reversed.

<img src=http://www.fi-p.unam.mx/simposio_investigacion2006/ponencia7_ext_archivos/image003.jpg>
http://www.fi-p.unam.mx/simposio_invest ... age003.jpg

An interesting aspect of the Mexican energy industry is that while petroleum rock oil is tightly controled by PeMex Mexico is well suited for bio fuel crops like euphorbia and jatropha which are both desert crops and that the bio fuel industry is unregulated. One thing that I can forsee is that there might be a number of Mexican private producers that begin in bio fuel and that are then allowed into petroleum.

Retail gasoline sales and distribution and industrial petro chemicals two areas which used to be PeMex monopolies are now already open to private competition.