By David Alire Garcia
MEXICO CITY (Reuters) – Mexico’s presidential frontrunner is not opposed to foreign investment in the country’s oil, his top energy adviser said, but his government would make dramatic changes to energy strategy, including a new focus on refining rather than crude exports.
In perhaps the most significant change envisioned by Andres Manuel Lopez Obrador, the favorite to win the July 1 election, Mexico would seek to end decades of exporting crude in three years, a lawmaker who Lopez Obrador has tapped to be his future energy minister said in an interview.
Instead, Mexico should turn its focus to value-added fuels, processing crude domestically to produce more gasoline and diesel at refineries owned by state oil company Pemex, Rocio Nahle told Reuters late on Wednesday.
“In a three-year period, at the latest, we need to try to consume our own fuels and not depend on foreign gasoline,” said Nahle at her congressional office in Mexico City.
That could spell bad news for U.S. refiners. Mexico is their biggest foreign market currently, with purchases of gasoline and diesel growing rapidly in recent years to an average of 808,000 barrels per day (bpd) last year, or about two-thirds of total domestic demand, according to Pemex data.
Pemex’s total crude exports, mostly to U.S. Gulf Coast refiners as well as Asian and European buyers, averaged 1.17 million bpd in 2017, down from a peak of 1.87 million bpd in 2004.
But Latin American countries are increasingly seeking to add value to their exports of raw commodities. Nahle gave details of what that might mean for Mexico – modernizing Pemex’s six existing refineries, and building one or two new ones that would add crude processing capacities of between 300,000 and 600,000 bpd.
Possible sites in the oil-producing states of Tabasco and Campeche had been identified and the new facilities would be financed by either public funds or some kind of public-private partnership, she said.
“We are doing the technical, economic analysis to see if it (would be) one big refinery, or two medium-sized ones,” said Nahle, a petrochemical engineer who represents the Gulf coast state of Veracruz, also a major oil producer, in Congress.
A Lopez Obrador government would aim to improve the existing refineries’ productivity in about eight months solely using public funds, Nahle said.
Pemex refineries currently have the capacity to process about 1.6 million bpd, though last year they only refined about 770,000 bpd. The company produces about 1.9 million bpd of crude, down from a 2004 peak of 3.4 million bpd.
Leftist Lopez Obrador holds a double-digit lead over his nearest rival in many opinion polls, although a young center-right contender has been gaining ground.
Nahle, who leads Lopez Obrador’s Morena party in the lower house of Congress, said, if elected, their government would closely examine all the deals made under President Enrique Pena Nieto’s 2013-2014 oil opening, but welcomed private investment.
“We in Morena are open to investment, we are open to the world,” Nahle said.
Lopez Obrador initially opposed the oil reform, which ended Pemex’s decades-old monopoly, but seems to have softened his stance since the changes have begun to be implemented.
To date, some 90 exploration and production contracts have been awarded to a wide range of oil companies over eight auctions, including nine deepwater blocks won by Royal Dutch Shell at a tender last month.
The government forecasts that the companies would invest around $150 billion if the projects are commercially successfully over the lifetime of the contracts.
In recent months, Lopez Obrador has said that he would review the contracts to make sure there was no corruption involved.
Nahle said his team had already looked at publicly available contracts without finding problems, but would study files that are not in the public sphere in detail if they win the election.
If a Lopez Obrador government were to determine that already-signed contracts were flawed or tainted by corruption, it would likely not authorize future oil auctions, Nahle said.
“It would be very rash for me to tell you now that we are going to hand over more blocks, no? Or to say we are never going to do more blocks,” said Nahle.
“We will see at every moment what is best for Mexico,” she said, adding that the current government had been “irresponsible” by auctioning off too many oil and gas blocks.
“Nowhere in the world have we seen handed over (to private oil companies) such a stream of blocks … it seems like an excessive rush,” she said.
Other Lopez Obrador advisers have said in recent days that the team was happy with the contracts signed under the outgoing government.
While she said Lopez Obrador was open to authorizing more equity joint ventures with Pemex, also allowed by the energy opening, Nahle stressed the need for Pemex to seek partnerships outside Mexico.
“Pemex needs to go to Asia, Pemex needs to go to Texas, Pemex needs to go to South America to find partners … it’s a priority for us that Pemex is truly globalized,” she said.
(Reporting by David Alire Garcia, Editing by Rosalba O’Brien)