Mexico: ‘energy reform’ promises privatization —and fracking

On Aug. 12 Mexican president Enrique Peña Nieto formally announced his plan for transforming the country’s nationalized energy sector by opening up the giant oil company Petróleos Mexicanos (Pemex) to shared risk contracts with Mexican and foreign private companies and by allowing private companies to generate electricity for the Federal Energy Commission (CFE). Mexico is currently the world’s largest oil producer, with about 2.5 million barrels pumped each day, but Peña Nieto said his “energy reform” would raise oil production to 3 million barrels a day in 2018 and 3.5 million 2025 and natural gas production from 1.7 million cubic feet now to 8 million cubic feet in 2015. The reform, which would require changes to articles 27 and 28 of the Constitution, is supported by the center-right National Action Party (PAN) and Peña’s centrist Institutional Revolutionary Party (PRI); the votes from the two parties should be enough to get the legislation through the Congress.

Far from meaning the privatization of Pemex and the CFE, Peña said, his program would maintain state ownership, continuing the policies of President Lázaro Cárdenas del Río (1934-1940), who nationalized the petroleum industry in 1938 but allowed contracts with private companies. In fact, private companies already contract for drilling and other production, but the risk contracts would allow companies to share the profits for the first time. According to Peña, this would provide capital and technological expertise necessary for expanded production. Pemex currently pays the government some 70% of its revenues, providing about one-third of the national budget but shortchanging investment in oil exploration and production, critics say.

The dramatic expansion of gas production in Peña’s proposal would be in the Eagle Ford shale formation, which extends from southern Texas into northern Mexico. On the US side companies have 9,100 permits for drilling, producing large amount of natural gas through the controversial hydraulic fracturing (“hydrofracking”) method. Mexico has done relatively little drilling in the region. (La Jornada, Mexico, Aug. 13; Global Post, Aug. 13)

US companies responded enthusiastically to Peña’s proposal. “This is a good start,” Kurt Glaubitz, a spokesperson for the California-based Chevron Corporation, told the New York Times. “We’re optimistic about the reforms that are taking place and the opportunities that Mexico is presenting to international oil companies.” The US “would be the most likely beneficiary of a new Mexican oil boom since its fields are close to Gulf of Mexico refineries,” the Times noted. Experts expect that the changes will reduce US dependence on oil from the Organization of Petroleum Exporting Countries (OPEC); Mexico isn’t a member of the cartel. (NYT, Aug. 14)

The reform is expected to meet strong opposition in Mexico. Cuauhtémoc Cárdenas Solórzano, Lázaro Cárdenas’ son and the founder of the center-left Party of the Democratic Revolution (PRD), questioned the claim that Pemex needs private capital. “I don’t see…where there’s a lack of capital,” he said in an Aug. 13 radio interview. “I don’t see where there’s a lack of resources or an inability by Pemex to get resources from credits.” Cárdenas, who holds an engineering degree, noted that he had repeatedly called for reforms in the company’s finances, which he said would cover any shortfall. (LJ, Aug. 14) Andrés Manuel López Obrador, a former Mexico City mayor (2000-2005) who came in second as a center-left coalition candidate in the 2006 and 2012 presidential elections, has called for a protest in the capital’s central Zócalo plaza on Sept. 8. He also supports a call for a plebiscite issued by another former Mexico City mayor, Marcelo Ebrard (2006-2012), although López Obrador added that even without a vote he was sure most people oppose the reform, “or else we Mexicans would be masochists.” (Ciudadanía Express, Mexico, Aug. 17)

On Aug. 11, the day before Peña’s announcement, community police organizations from four indigenous villages marched in Tlapa in the southwestern state of Guerrero in opposition to any privatization of Pemex and the CFE. (Los Angeles Press, Aug.13)

Other critics questioned the reform’s continued reliance on the burning of fossil fuels and technologies like hydrofracking instead of alternative energy sources. “Right now petroleum is the main natural agent leading to the suicide of the species,” Víctor M. Toledo, a former researcher at the Ecology Institute at the National Autonomous University of Mexico (UNAM), wrote in an op-ed. He noted that Mexico “is one of the countries with the greatest risk from climate change. Three phenomena made more acute by the global imbalance will hit Mexico hard: a) the increase in the number and power of hurricanes; b) the recurring droughts that will be aggravated in the center and the north of the country; and c) the general increase in temperatures.” (LJ, Aug. 17)

From Weekly News Update on the Americas, August 18.