Page 5 - LatAmOil Week 07 2022

LatAmOil COMMENTARY LatAmOil

Late last year, the NOC’s head, Octavio Romero expectations and pushes production levels up to
Oropeza, announced that his company had 2mn bpd, or 14% higher than present levels, by
decided to go along with Lopez Obrador’s plan December 2022, it said.
to phase out oil exports.
According to Romero Oropeza, Pemex is More gas imports needed too
now on track to cut exports all the way down But this isn’t the only instance in which Lopez
to zero by the end of next year. Sales to foreign Obrador’s strategy of increased reliance on the
clients will drop to 435,000 barrels per day (bpd) public sector is likely to have difficulty uphold-
in 2022, he said, and then sink to nothing by the ing its promises of increased energy security and
end of 2023. independence.
This is a significant drop, considering that As mentioned above, the president has made AMLO’s strategy
Mexico has been exporting at least 1mn bpd of extensive use of persuasion and administrative
crude for the last 40 years. However, the pro- measures in his quest to secure extra advantages of increased
cess is already underway. Sources familiar with for state-run energy companies. However, he reliance on the
the matter told Reuters earlier this month that has made some attempts to change the laws too.
Pemex had already started cutting the volume Since last October, for example, he has been public sector
of crude delivered to Indian refiners, in line with working to secure support in the legislature
its previously announced decision to reduce for a proposed constitutional amendment that is likely to
exports. would guarantee CFE a 54% share of the domes-
In theory, the NOC is taking this step so that tic electricity market, eliminate the wholesale have difficulty
it can send all domestically produced crude to power market operator established in 2013 and upholding its
its own refineries – to the six existing plants it dismantle the Energy Regulatory Commission
has in Mexico, to the Deer Park plant in Texas (CRE). promises of
that it acquired from Shell (UK) last month and The measure is unlikely to pass, since Lopez
(eventually) to the 340,000 bpd Las Bocas plant Obrador does not have enough support to increased energy
it is building in Tabasco. In doing so, it hopes to secure passage through the legislature (or, for
be able to boost utilisation rates at its six exist- that matter, subsequent ratification by state leg- security
ing plants, which have been running far below islatures). If it were to succeed, however, CFE’s
capacity for year. increased share of the market would likely come
More broadly, it also hopes to increase fuel at the expense of private investors, at least some
production, thereby making larger volumes of of which would probably be looking to develop
petroleum products available to Mexican con- alternative and renewable energy solutions.
sumers at lower prices. And ultimately, it hopes At best, it might consist of the construc-
to be able to cover domestic fuel demand so as to tion of a new natural gas-fired thermal power
make imports unnecessary. plant (TPP). After all, CFE does burn gas for
However, Nymia Almeida, the senior about 60% of its electricity production, Roxana
vice-president for corporate ratings at Moody’s Munoz, a senior analyst at Moody’s office in
Investor Service, told Bloomberg in an inter- Mexico City, told Forbes last week. This means,
view last week that she expected this initiative to then, that CFE would have to import more gas,
backfire. Even if Pemex directs 100% of Mexican probably from Texas, to use as feedstock if the
crude production to the refineries it owns and proposed amendment passes – and as such it
controls, she said, it still won’t have the feed- represents yet another risk facing Lopez Obra-
stock to produce enough fuel to cover domestic dor’s state-driven energy policy.
demand. Even so, risks of this type are not likely to
This is in line with company documents pre- deter the president from his course. Lopez Obra-
dicting that Pemex may need to start importing dor’s commitment to keeping Pemex and CFE at
crude as early as next year, Bloomberg said. The the forefront of Mexico’s energy policy is not just
news agency explained that it had seen company driven by data and cost-benefit analyses; it also
materials speculating that operational changes seems to be fuelled by his gut conviction that this
at the Cangrejera refinery might result in oil strategy offers the most protection to Mexico’s
supply deficits of 47,000 bpd in 2023 and 97,000 poorest citizens. As such, it is likely to remain
bpd. The documents indicate that these short- under discussion for the rest of his term, which
falls are expected to happen even if Pemex meets is due to end in 2024, even if it founders. ™

(Photo: LopezObrador.org.mx)

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