Mexico faces energy and economic crisis

28 October 2008 19:51  [Source: ICIS news]

By Joseph Chang

NEW YORK (ICIS news)--Mexico is facing a huge energy crisis that will have ripple effects on its economy and petrochemical industry, the former head of the country’s Phoenix Project said on Tuesday.

“Today, Mexico faces a fundamental problem, which makes the issues in the petrochemical industry of minimal concern compared to the oncoming energy crisis and its impact on the country’s economy,” said Arturo Garcia.

“If Mexico runs out of crude oil and gas in about five to eight years, then there will be no feedstock to supply any new petrochemical facility or refinery,” he added.

From 2003-2007, Garcia was the executive director of Mexico’s Phoenix Project, which aimed to make the country less dependent on imported plastics. He is now an independent consultant.

Despite securing investors for the project in Mexico and abroad, such as Canada-based NOVA Chemicals, the Phoenix Project fell apart as the venture and the government could not come to terms on the price mechanism for ethane feedstock to supply the project.

Aside from a stagnant petrochemical industry, Mexico’s decline in crude oil production continues to accelerate, said Garcia.

In 2004, state oil company Pemex produced 3.4m bbl/day of oil. Today, that figure is down to just 2.8m bbl/day, he said

Plus, the price of crude oil has collapsed from a peak of $147/bbl in July to just above $63/bbl as of Tuesday, further putting a dent in oil export revenues.

Mexico’s oil export revenues are expected to total $30.4bn (€24.3bn) in 2008, said Garcia. The Mexican government depends on crude oil export revenues for 40% of its annual budget, he added.

“In the meantime, imports of hydrocarbons and derivatives into Mexico continue to grow. The country is now spending more than $15bn/year - equivalent to 50% of total revenues from crude oil exports - to import the gasoline and other crude oil derivatives such as petrochemicals,” said Garcia.

The failed Phoenix Project, if launched as planned, would have helped mitigate the imbalance, he said.

“Mexico’s Phoenix Project, which was launched four years ago by President Vicente Fox, would have today been under commissioning for start-up. But it simply did not happen because of the lack of political will,” said Garcia.

The country’s energy reform legislation, expected to pass Congress later this week, will do little to help solve the energy crisis, he said.

“The Energy Reform or Pemex Reform encompasses only minor and very light changes to benefit Pemex operations, but does nothing to address the substantial modifications that Mexico requires to allow and attract private capital to invest in crude oil exploration, particularly in deep sea reservoirs where much more capital and sophisticated technology is needed,” Garcia said.

($1 = €0.80)

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For more analysis and insight on Mexico’s energy policy and impact on petrochemicals, look for the 10 November issue of ICIS Chemical Business magazine

 

By: Joseph Chang
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