I recently received an email from a friend who lives part of the year in Mexico. She was very upset at the destruction that followed Alex as it blew through Monterrey and across the Rio Bravo.
Her suggestion for relief? "Let Mexico pay for it out of its vast oil riches."
I run into this misconception quite often. If Mexico has oil, it must be as rich as Saudi Arabia.
It is true that Mexico stumbled onto oil riches in 1976 when oil revenues started flowing in from the wells in the Gulf of Mexico. What had once been a struggling economy had an opportunity to become a middle income country.
But those days may be drawing to a close -- soon. Because the oil is running out. And not the way the Macondo oil is running out.
Running out as in tank empty. Pull over to the shoulder. You are not going any further.
And Mexico is in danger of seeing the tank start dropping to empty -- as soon as two years from now. If not sooner.
Analysts have known for some time that Mexico’s biggest oil field, the Cantarell field, is in terminal decline. As the supply declines, Mexico may not produce enough petroleum for internal consumption. Within a year or two, Mexico may turn into a net importer of oil. Almost as if Italy needed to import Spanish olive oil to meet its culinary needs.
Mexico's electricity is fossil fuel dependent. Almost 90%. Even though the country has grand plans to reduce that amount by 25% with renewable energy sources, that day is far in the future. After the wells run dry. It is difficult to develop a middle-income economy without a power source.
More frightening -- Mexico's budget is oil thirsty. 40% of the country's revenues are provided by Pemex, the national (and nationalized) oil company.
President Calderón attempted several reforms to revitalize the oil industry.
Mexico has never had adequate refineries for the petroleum it produces. As a result, most of the oil is refined in Texas and returned to Mexico. The refinery in Mexico is almost a caricature of unions gone bad. The rate of output is far below that of the Texas refineries. As a result, the end cost is much higher than it needs to be.
When President Calderón attempted to reform the operation of the refinery and to allow foreign companies to assist Pemex in searching for deep water sites, the conservative forces in the House of Deputies bottled up the bill.
As a result, the oil runs dry, the refinery soon will stop refining, and Mexico will face a drastic budget crisis.
Even with the BP spill, Mexico is interested in developing the oil fields in deep water. But it will need foreign assistance to explore.
Mexico celebrates the centennial of its revolution this year. A revolution that resulted in a one-party state and the nationalization of its natural resources.
One party rule came to an end with the Fox presidency in 2000.
Maybe 2010 will see another step in that revolution as Mexico frees its economy to meet the challenges of the twenty-first century.
Necessity may be the mother of invention -- even when ideology is involved.
