- The Washington Times - Monday, June 19, 2006

MEXICO CITY (AP) — In the midst of Mexico’s biggest oil boom since the 1970s, the nation’s top two presidential candidates are debating whether to turn outward and open oil to private investors — or inward by exporting less crude and giving Mexicans subsidized gasoline.

The question involves nationalist pride as well as pump prices, but the real challenge lies elsewhere: finding new deposits to replace Mexico’s rapidly declining Cantarell field off the Gulf Coast. If Mexico doesn’t act quickly, the question of what to do with the oil wealth may be moot — in a decade, there may not be enough oil left to supply the economy.

The best hope for new discoveries appears to be in deep-water exploration in the Gulf of Mexico, but the state-owned Petroleos Mexicanos, or Pemex, oil company has little experience in such projects. Mexican law has long prohibited private investment in anything other than minor subcontracts, too small to interest most major energy companies.

Conservative Felipe Calderon, President Vicente Fox’s former energy minister, and the third major candidate, Roberto Madrazo, propose loosening the rules and allowing private companies to explore deep waters through joint ventures with Pemex.

Leftist Andres Manuel Lopez Obrador, who is running about even with Mr. Calderon in the polls, opposes private investment and isn’t very interested in deep-water exploration. One of his advisers, Rogelio Ramirez, calls it “beyond our reach” and prefers onshore projects.

Mr. Lopez Obrador thinks that too much emphasis has been placed on exports and wants to focus instead on channeling more of the windfall oil profits into building new refineries and petrochemical plants in Mexico.

Mr. Lopez Obrador, a native of the oil-rich Gulf Coast state of Tabasco, also vows to make the energy sector “the pillar for promoting industrialization and development,” a phrase that recalls the oil-boom rhetoric of the 1970s.

Back then, Mexicans benefited from the nation’s oil riches, albeit largely in the form of splashy, ill-conceived government projects and government jobs.

This time around, the windfall is being more conservatively managed, and Mexicans are seeing the fruits of historically high oil prices only indirectly, in the form of low interest rates fueled by the government’s booming foreign currency reserves.

“In the old days, the money was spent in a different way,” said political analyst Federico Estevez. “In a sense, the less you see of it, the better … the less money they [officials] have to spend on white elephants.”

Mr. Lopez Obrador wants to make the benefits of high oil prices tangible to the nation’s poor by lowering gas prices and fueling an economic boom. Mexicans pay about $2.50 a gallon.

But Mexico doesn’t have the huge oil reserves that have allowed Venezuelan President Hugo Chavez to deliver new benefits to his supporters and increase his regional influence, or even the substantial natural-gas production that Bolivia’s Evo Morales has nationalized with the hope of improving the lives of his impoverished Indian population.

With Mexico’s domestic consumption approaching 1.7 million barrels per day and Mr. Lopez Obrador’s plan to use more of Mexico’s crude to supply domestic refineries and petrochemical plants, that would leave a lot less for export.

Mexico is a major exporter of crude oil to the U.S., second only to Canada for the first three months of 2006.

Mr. Calderon espouses more focused subsidies, such as helping poor families or communities with their energy bills.

“Whoever wins the election will probably put a radical imprint on energy policy,” said Mexico City-based industry analyst David Shields. “This election is about ideology. You’re voting for someone who’s way on the left, or someone who’s way on the right.”

Mr. Lopez Obrador criticizes Mr. Fox’s administration, saying, “The only thing that matters to them is selling more and more crude to foreigners, neglecting exploration and new reserves and above all, abandoning refining and petrochemicals.”

One thing that’s clear: Business as usual isn’t an option anymore.

Mr. Shields predicts Mexican oil production could fall from 3.35 million barrels per day to as little as 2.8 million barrels per day within two or three years, if nothing is done.

“The current organization and course of the oil industry in Mexico are unsustainable,” George Baker, an industry analyst with energia.com, wrote in a research report.

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