Energy Sovereignty Vision Set Back as Oil Exports Rise
Mexico is set to maintain crude exports at approximately 1 MMb/d to benefit from the recent rebound of oil prices, which in turn will represent a setback to President Andrés Manuel López Obrador’s plans of reducing crude exports to achieve energy sovereignty by 2023. Minister of Energy Rocío Nahle recently spoke about reevaluating the export reduction. Although a decision has not been made public, it is already causing disagreement.
Early March, López Obrador announced that because of the crude exports’ rising prices on the back of Russia’s invasion of Ukraine, the surplus value from these exports made up for the increasing oil imports needed to supply to the local market. Analysts from Emerging Markets Political Risk Analysis (EMPRA) argued against the president’s plan. They suggested that if the government reinforced a fuel subsidy while continuing to decrease crude exports, this surplus will eventually disappear, thus hindering the government’s attempt to ensure stability in prices. Additionally, research conducted by Brattle Group showed that the cost of maintaining the subsidy on gasoline and diesel is almost 40 percent higher than the additional income coming from crude exports.
“PEMEX has a very limited platform for exports,” said Verónica Irastorza, Principal, Brattle Group, which further reduces its ability to increase production levels to benefit from the rising international oil prices and could suggest the inevitability of lowering production for exports. In December 2021, the president explained that exports were to be halved to 435Mb/d so Mexico could refine enough crude oil to avoid imports. Yet, even before Russia invaded Ukraine, January 2022’s crude exports were up by 30 percent in comparison to that same month in 2021.
Much of the current public investment in the Mexican oil and gas sector goes toward refining processes. According to BNamericas, PEMEX will spend up to US$16 billion on these projects. Unfortunately, the Mexican state-owned company is losing more than what it can produce, added Irastorza, as it spends too much on each barrel to be able to profit from it. Overall, PEMEX is said to deal with internal inefficiencies that prevent it from achieving higher production levels of crude oil and refined fuels.
Although less skeptical about the potential of the subsidy, Capital Economics Analyst for Latin America Nikhil Sanghani also expressed concerns over the prolonged measure as a regulator of gasoline prices. “(The government) could not solely rely on the extraordinary income from the oil revenue but instead would do well in reassigning funds to assist PEMEX,” said Sanghani in an interview with BNamericas. Mario Correa, Head of the Economic Committee, Mexican Institute of Finance Executives (IMEF), added that when the time comes, “a need to resort to other types of cuts in spending will emerge” should the government want to maintain the subsidy for the long term.