Page 5 - LatAmOil Week 12 2022

LatAmOil COMMENTARY LatAmOil

Four months ago, oil markets were looking gen- end of the year, the consultancy said in a report
erally bullish, as the global economy was con- published on March 15.
tinuing its slow and bumpy recovery from the It may also serve as an argument against halt-
coronavirus (COVID-19) pandemic, but prices ing exports, EMPRA argued in its report. “[If]
hadn’t shot past the $100 per barrel threshold the Lopez Obrador administration continues
as elected officials, bureaucrats, businessmen to decrease its exports while heavily subsidising
and pundits contemplated the possible impact gas prices, this surplus will quickly disappear,”
of sanctions on Russian energy and commodity it said.
exports.
In other words, four months ago, Pemex Losses outweighing gains
and the Mexican government weren’t facing The problem, though, is that the projected gains
the question of whether it might not be worth from revising the schedule for stopping exports
their while to wait just a bit longer to put an end may not match the projected increase in spend-
to exports so as to bring in a little extra money ing on exports.
while crude prices were still running high. This possibility is evident not just from the
Now, however, they are facing that question. gap between EMPRA’s forecast for surplus rev-
And they appear to be leaning toward answering enues and additional subsidy expenditures but
in the affirmative – that it is indeed worthwhile. from figures drawn up by the Brattle Group and
cited in a report published by BNamericas ear- There is a good
Revenues and subsidies lier this week.
Lopez Obrador began opening the matter up for According to the report, Veronica Irastorza, chance that
discussion in the first week of March by saying a principal at the Brattle Group, said during a Pemex will
that he expected his government to use the rev- recent online forum convened by the University
enues earned from higher oil prices to compen- of California-San Diego (UCSD) that the cur- lose more than
sate consumers in Mexico for rising fuel prices. rent fuel subsidy policies were costing the Mex-
The following week, Nahle told Bloomberg in an ican government about MXP8.08bn per month. it gains if it
interview that the spike in oil prices was leading But if Mexican crude export prices rise to an
Mexico City to take another look at its plan for average level of $100 per barrel, they will gener- delays the end
bringing crude exports to a close. ate additional earnings of only MXP5.79bn per of oil exports in
Neither Lopez Obrador nor Nahle made month, which is not enough to cover all the costs
any specific statements about the govern- of the subsidy, she noted. order to bring in
ment’s plans. But in the third week of March, a Irastorza also pointed out that Mexico’s oil
source with direct knowledge of the matter told industry was not capable of responding quickly more money to
Bloomberg that Mexico City was probably going to changes in world market conditions or pric-
to keep oil export volumes at around 1mn bpd ing trends. Since Pemex’s export platform is subsidise fuel
on a temporary basis in order to take advantage “very limited,” she said, the company cannot imports
of current market conditions. boost production levels quickly in order to
It was not immediately clear whether the secure maximum advantage whenever prices
source meant that shipments would be increased swing upward, she explained.
from the January level of 832,000 bpd or kept Instead, she continued, the NOC has cho-
steady. But he did say that officials in Mexico sen to focus its efforts on its domestic refining
City viewed high prices as a potential wind- operations. This is an inherently inefficient allo-
fall and believed that revising the schedule for cation of resources, since it spends more money
phasing out exports would allow the country to to produce gasoline than it earns from selling,
earn extra money that could be used to subsi- she stated.
dise domestic fuel prices. Subsidies would serve What this means, in short, is that there is a
the politically important purpose of alleviating good chance that Pemex will lose more than it
the pain of rising gasoline and diesel costs, he gains if it delays the end of crude oil exports in
commented. order to bring in more money to subsidise fuel
imports.
Surplus revenues But frankly, there has always been a signifi-
As of press time, neither the government nor cant likelihood that the plan to keep all domes-
Pemex had commented further on the matter. tically produced crude oil inside the country was
Lopez Obrador, for his part, said on March going to backfire or fail to meet expectations in
18 that he still wanted to see Mexico become one way or another – perhaps because of cost
self-sufficient in energy by the end of next year. overruns and delays in construction at the
Meanwhile, Bloomberg noted that EMPRA, 340,000 bpd Olmeca refinery in Tabasco State,
a risk consultancy based in Mexico City, had cal- perhaps because Mexico will still need to import
culated that the government stood to accumu- fuel to meet demand even if all of Pemex’s refin-
late surplus revenues of MXP170bn ($8.47bn) eries start working at full capacity or perhaps for
if the price of Maya, Mexico’s main export crude some other reason.
mix, averages $90 per barrel this year. This fig- So perhaps the NOC would do better to rec-
ure may prove alluring in light of the fact that ognise that both paths toward eliminating crude
Mexico City spent MXP104bn ($5.18bn) on exports are likely to cause problems and work
domestic gasoline and diesel subsidies last year toward a different goal. This is probably not
and may find itself spending three times as much going to happen while Lopez Obrador remains
in 2022 if current policies are extended until the in office, though. ™

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