Magazine article SourceMex Economic News & Analysis on Mexico

Mexico Announces Small Reduction in Oil Exports

Magazine article SourceMex Economic News & Analysis on Mexico

Mexico Announces Small Reduction in Oil Exports

Article excerpt

President Vicente Fox's administration has agreed to reduce Mexican exports of crude oil by about 75,000 barrels per day, even though this step will temporarily reduce government revenues.

In a statement released in late January, the Secretaria de Energia (SENER) said Mexico will limit exports of crude oil to 1.75 million bpd, short of the target of 1.825 million bpd projected in Fox's 2001 budget. In both cases, the government assumes an average oil-export price of US$18 per barrel during the year (see SourceMex, 2001-01-10).

Energy Secretary Ernesto Martens said the decision to limit oil exports allows Mexico to keep in step with the supply-management decisions of the Organization of Petroleum Exporting Countries (OPEC). In mid-January, OPEC announced plans to reduce global exports by 1.5 million bpd, effective at the start of February.

"The current evidence in the market shows there is an excess of supply, so it's logical to think of a reduction in output," Martens said. "Mexico, as an OPEC observer and in accord with its own strategy, will decide which road to take at the right time."

Some energy-industry observers said Mexico's reduction was small compared with the cuts that could have been implemented. Mexico would have to reduce its exports to about 1.6 million bpd to have a major impact on the market, said Sergio Benito Osorio, former chair of the energy committee (Comision de Energeticos) in the Chamber of Deputies.

Mexico could lose leadership in global oil market

Osorio, a member of the center-left Partido de la Revolucion Democratica (PRD), said the relatively small export reduction would cause Mexico to lose the leadership role among global oil producers it attained in recent years. He cited the initiatives taken by Mexico, Venezuela, and Saudi Arabia in 1998 to push for cuts in production and exports when global prices had fallen sharply (see SourceMex, 1998-03-25, 1998-06- 10).

Osorio said Mexico's decision to distance itself from OPEC--and particularly from Venezuela--is intended to create a better political climate for the Fox administration to expand its relationship with the administration of US President George W. Bush.

"Mexico must retain the influence it attained in recent years through its 'petroleum diplomacy' and its leverage as one of the principal suppliers of crude oil to the US," Osorio told the daily newspaper La Jornada. "This can only occur if Mexico maintains the partnership that it had formed with Venezuela and Saudi Arabia."

Mexico's decision to limit the size of its reduction comes only a few weeks before a scheduled visit by Bush to Mexico in mid-February.

"Bush is going to be looking to Mexico as a major ally, so there's a lot riding on getting the signals going the right way before the visit," said George Baker, director of Houston-based Mexico Energy Intelligence.

Fox seeks to integrate US & Mexican energy sectors

Analysts said the decision to consider the needs of the US in making the oil reduction is part of Fox's overall strategy to more closely integrate the US and Mexican energy markets. This intention was very apparent in the Mexican government's decision in late January to start selling electricity to California, which is facing a severe power shortage.

In late January, the Comision Federal de Electricidad (CFE) announced plans to sell 50 megawatts per day of electricity to the California Department of Water Resources at a price of US$230 per MW hour.

CFE director Alfredo Elias Ayub said Mexico has the capacity to increase sales perhaps to 150 MW at nonpeak hours. "We can do a little, but there is not the physical infrastructure to do more," Elias Ayub said in a radio interview.

The amount of electricity Mexico is selling to California accounts for only 1.5% of the power deficit of 10,000 MW to 15,000 MW experienced by the state. …

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