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Latin America

Treasures of the sea

by Virginia Mercado
“In regard to the  Deepwater Horizon disaster, the question is what will Mexico do if another oil spill happens?“

“In regard to the Deepwater Horizon disaster, the question is what will Mexico do if another oil spill happens?“

Oil reserves are a matter of national pride in Mexico. Exploiting submarine resources generates government revenue, but also causes all sorts of hazards. By Virginia Mercado

In August, Mexico’s President Felipe Calderón Hinojosa announced the discovery of an offshore oil field in the deep sea in the Gulf of Mexico. This oil field is so vast that a production of 300 million barrels of crude oil annually seems to be possible, which would be a third of the current production of approximately 900 million barrels per year.

Given that the other oil fields in Mexico have peaked and are in decline, this is an important discovery. The president spoke of opportunities for the national oil company PEMEX, pointing out long-term gains. These, he said, should be turned into benefits for the Mexican citizens, so that they could have “more accessible energy”.

So far, poor people in particular do not have reliable access to affordable energy, even though Mexico is an oil-producing and oil-exporting country. At present, Mexico needs to import fuel and refined oil. Internationally, fuel prices are on the rise, which in turn hits Mexican consumers.

According to the National Institute for Statistics, Geography and Information (INEGI), the oil business accounts for 40 % of the total annual government revenue on average. Mexico is the fourth biggest crude oil producer in the world, only surpassed by Saudi Arabia, Iran and Venezuela.

Consequently, the exploitation of oil reserves is of strategic importance. A debate has started on whether or not to allow private investments in the exploration of the new oilfield – and if so, under what conditions.

One important issue is that for any oil field in the Gulf, Mexico, Cuba and the USA have equal drilling rights. If one nation decides not to exploit an oil field, this doesn’t stop the others from doing so. As a result, all governments are under pressure to exploit resources.

Mexico’s oil business is run by a government-controlled corporation. In the two other countries, international companies are active. According to PEMEX, Cuban oil fields are being exploited by PDVSA from Venezoela, REPSOL from Spain and PETROBRAS form Brazil.

In Mexico, the oil industry is deeply connected to nationalist ideas. It was nationalised in 1938, and for many Mexicans, the state-owned company remains a symbol of sovereignty. Over the years, however, it has opened up to private investors, which triggered polemic debates. On the one hand, it is clear that private sector funds would strengthen PEMEX; on the other hand, people fear the state might lose control and, consequently, future generations might lose an inherited bounty.

According to the left-wing newspaper La Jornada, the “greatest inroads for private capital since nationalisation of the oil industry” were made this year. The paper refers to the outsourcing of many parts of the oil production. All companies involved in exploration and extraction of the crude still depend on PEMEX contracts however. Foreign investment is most common in the area of distribution.

Enrique Peña Nieto, the president elect, seems to consider private investors even more favourably. Apparently, a reform bill is being prepared which would allow foreign investment in PEMEX itself, but the topic is very hot politically and handled with extreme caution.

For the government, the newly discovered oil field is an economic and political triumph. Others see great risks – not only for the environment, but also for the local economies.

Deepwater Horizon

The accident which occurred on the offshore oil rig Deepwater Horizon in the Gulf of Mexico in April 2010 clearly showed what an enormous impact an oil disaster has not only on the environment, but also on the life of the people on the shores. Two years later, BP, the Britain-based multinational which owns Deepwater Horizon announced that it reached a settlement with the communities concerned “without admitting responsibility”.

BP agreed to pay compensations worth $ 7.8 billion in total to fishermen and small-scale claimants. The US Department of Justice, however, is unwilling to settle. Its legal charges may result in further compensation payments and related costs worth more than $ 20 billion.

In Mexico, the States of Tamaulipas, Veracruz and Quintana Roo were most affected. According to the magazine Proceso, tourism, fishing and general business were seriously hurt by the oil spill. The Federal Government so far shied from legal action. It hopes the US Justice Department, which is in a stronger position, will handle this matter.

In regard to the Deepwater Horizon disaster, the question is what will Mexico do if another oil spill happens? One issue of debate is the low technological capacity of PEMEX. Another is the insecurity in Mexico as such – robbery of fuel is a frequent crime, often resulting in ecological hazards. These robberies are mostly attributed to organised crime linked to drug trafficking, such as the Gulf cartel and the Zetas.

Greenpeace Mexico keeps an eye on oil spills on Mexican territory and publishes related information on its website. Apparently, most damage is caused by lack of maintenance and fuel robbery. Greenpeace calls its list “The spill of the day”, and gives examples like the spill in the river Coatzacoalcos (in Veracruz, December 2011) where up to now, no compensation was paid.

Oil spills affect farmland, drinking water and fisheries. They cause fires and all sorts of environmental hazards. The authorities try to suppress related information. Greenpeace maintains that the majority of the articles on oil spills are published in local papers with limited circulation, so they don’t have the impact of coverage in nationwide papers or other media.

Another challenge is that Mexico shares exploitation of natural resources in the Gulf with the United States. All decisions have to be based on treaties that serve all countries involved. However, there is a risk of the US extracting crude without control, because many of the oil fields lie near its shores. A treaty agreed in 2000 that prohibited oil extraction in border areas for ten years has expired. Mutual exploitation is possible now, but so far, it has not been decided what percentage is due to each country.

In February, a new oil treaty was concluded. One difficult issue was the fact that Mexico’s oil industry is nationalised and therefore consists of a single company, whereas various companies are engaged on the US side. The oil fields in the neighbouring zones are another bone of contention. According to the treaty, an oil field cannot be exploited by more than one firm at the same time, and both parties to the agreement must decide which company gets the extraction licence. The USA has an advantage however. Experts reckon it is 20 years ahead of Mexico in the techno­logy of deep sea oil extraction.

Mexico obviously faces various difficulties. The challenge lies in exploiting the energy resources in a way that gives good economic results without endangering the environment and the health of its citizens.