Regulación / Regulatory / NGI Mexico GPI / NGI The Weekly Gas Market Report / NGI All News Access

Lopez Obradór Sprinkles Tabasco Sauce on Criticism of Energy Reform

It was déjà vu all over again for the Mexican oil industry, when President-Elect Andrés Manuel Lopez Obradór visited his home state Tabasco over the weekend to meet with Mexican service companies.

Every six years since Mexico's oil production peaked in 2004 at 3.38 million b/d, each successive administration has pledged to spend billions of dollars in state-owned Petróleos Mexicanos (Pemex) and has forecast an increase in production.

None of the administrations have succeeded, and Pemex crude output stands at about half of the  peak of 14 years ago.

Now Lopez Obradór is aiming to achieve a Herculean task, spending billions of government dollars and aiming for a substantial boost in production.

The 2013-14 energy reform might ease the burden by releasing capital and know-how. Lopez Obradór, however, described the reform as a "failure.” So presumably he wants the government to go it alone.

"If we don't get a move on, oil output is going to sink further, with all that implies,” he said after a meeting with the business leaders. The implication, apparently, is of a severe financial crisis.

Lopez Obradór pointed to his plan to invest $3.9 billion in the upstream next year, with $3.4 billion more to come, making a grand total of $7.3 billion.

The target is to produce 2.6 million b/d by 2024, about the time Lopez Obradór should be handing over the reins to another administration. Previously, he had forecast Mexico oil production of 2.5 million b/d within two years.

"By the end of 2019, we'll be overcoming the crisis in oil production, and we'll be turning out more crude once again,” he said in Tabasco.

In what was a somewhat chaotic press conference after the meeting with the business leaders, the president-elect responded to reporters who caught his ear in response to simultaneous shouted questions. At one point he responded to a question on the energy reform by saying that it was a "vil engaño,” a “vile ruse.”

"People imagined that the energy reform was going to bring bundles of foreign investment, but that just hasn't been so," he said. "In the last four years, there's been 60 billion pesos ($3 billion-plus) for foreign investment in the energy sector...That's practically nothing."

The current Mexican administration reckons that the energy reform has generated investment commitments of as much as $200 billion.

That amount might include an element of speculation, said Energia a Debate publisher David Shields, who spoke with Mexico GPI. "But, unfortunately, the amount that he's talking about to reverse the decline in production won't be enough to solve that particular problem."

The jibes at the energy reform were admittedly nasty, Shields said, but Lopez Obradór’s audience consisted of service companies that have been hit badly by the changes in the structure of the Mexican industry that has been generated by the reform.

Like all politicians, Lopez Obradór tailors his remarks to mark his audience, Shields added. "This was very much a specific local audience. I'm sure he wouldn't have said anything like the same to potential foreign investors."

However, Lopez Obradór went over the top in both his rhetoric and his promises, he added. "He's been telling the service companies to promise major drilling Pemex tenders -- not upstream auctions -- to be announced in December, which is when he takes office. But that can't be done instantly. These tenders take months in planning and red tape to meet government spending regulations."

Adds Shields, "Unless a miracle happens, these service companies are going to be disappointed."

ISSN © 2577-9877 | ISSN © 1532-1266

Recent Articles by Ronald Buchanan

Comments powered by Disqus