Mexican Standoff: a New Threat to Oil
By JIM MCTAGUE | MORE ARTICLES BY AUTHOR
Why Mexican oil matters.
AY, CARAMBA! OUR PETROLEUM AND NATURAL-GAS supply pains could get a lot sharper, owing to both the growing potential for political instability in Mexico, which is waging war against powerful, home-grown drug cartels, and to soaring levels of political inanity in the U.S.
Mexico? Believe it or not, our No. 1 source of illegal immigrants and illegal drugs is also our No. 3 source of imported oil. Mexico shipped us about 1.3 million barrels a day in March, according to the Energy Information Administration. Canada is our top supplier, at 2 million barrels a day, followed by Saudi Arabia at 1.5 million barrels. Then come Nigeria, Venezuela, and Iraq.
But Mexico's crude production is falling, because its state oil monopoly, Petroleos Mexicanos, or Pemex, has cut corners on capital improvements and also is finding less and less oil in the shallow waters of the Gulf. Pemex estimates that it needs to spend about $50 billion over the next 10 years to improve its refining, plus $7 billion a year to develop deepwater oil fields. It ain't cheap to go deep. Chevron tells us that deepwater drilling platforms, which are in short supply amid strong worldwide demand, cost $800 million each, plus another $1 million per day to operate. These rigs are in waters a mile or more in depth.
Pemex, however, might not get the money it needs, thanks to local politics. About 80% of its revenue, which totaled $104 billion in 2007, goes to the government, covering about 40% of the national budget. Lawmakers are reluctant to live with less, which they would have to do if Pemex spends more on capital improvements. The government needs increasing amounts of cash to field 30,000 federal troops to battle the drug cartels, which are also waging bloody battles for dominance among themselves.
Mexico spent $3 billion on the military operation last year and found it insufficient to defeat the well-armed, well-financed drug lords, who have $20 billion to $40 billion in yearly revenue, according to George Friedman, chief executive of Stratfor, a private, global intelligence firm.
If the war continues and Pemex can't raise more cash, it oil exports to the U.S. could be squeezed significantly within 10 years. If the cartels destabilize the Mexican government, the day of reckoning could come far sooner.
Our government doesn't think that the cartels can mount a serious challenge to the government of President Felipe Calderon.
Steven Robertson, a special agent for the Drug Enforcement Administration, says that the cartels have haphazard chains of command and that they lack cohesiveness. J. Jesus Esquivel, Washington correspondent for Proceso magazine, says the Mexican army is too powerful to be defeated by the cartels, even though many are run by deserters from the armed forces.
But Denise Dresser Guerra, a political-science professor at Instituto Tecnologico Autonomo de Mexico, says the drug cartels don't need to mount a serious challenge to the federal government to cause instability, given that they have corrupted so many local and state governments.
We could easily replace the supplies of Mexican oil within 10 years if we allowed drilling for gas and oil in the shallow waters 100 miles off Florida and other states, where there is an estimated 30 years of supply. This will not happen. The politicians and presidential candidates are more interested in name-calling than in substantive debate. Republicans try to blame Democrats, who oppose drilling for legitimate environmental concerns, for causing high gasoline prices. The Democrats accuse Republicans, who want a secure energy supply for the U.S., of trying to help Big Oil make bigger profits.
One lost irony: While our politicians showboat for votes, Cuba is allowing Chinese energy companies to drill for oil and gas in the Gulf, less than 90 miles from Florida.
WE RAISED QUESTIONS LAST WEEK ABOUT PRESIDENTIAL candidate Barack Obama's confusing stance on nuclear energy. He is both for and against it, while rival John McCain is unabashedly pro-nuclear and favors a controversial proposal to store spent nuclear waste at Yucca Mountain in Nevada -- a stance sure to cost him that state in November.
Obama tossed off some lines in a Miami speech in May that sounded like a major proposal. His staff finally got back to us with some details, well after our deadline last week, and the proposals, it turns out, are fairly modest. For instance, when Obama said he would establish a program for the Department of Energy and its laboratories to "share technology with countries across the region," he was talking about a technology-transfer program dedicated to exporting climate-friendly technologies, not a technology giveaway. That's a relief.
He also said he would establish an energy corps to send engineers and scientists abroad "to help develop clean energy solutions." Translation: He will extend opportunities for older Americans -- teachers, engineers, and doctors -- to serve overseas promoting "green energy." Pack the bags and the carbon-sniffer, Maud! We're skipping Florida this winter.
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