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Monday, May 27, 2024 | Back issues
Courthouse News Service Courthouse News Service

Experts skeptical of Mexico plan to stop exporting oil by 2023

The biggest loser if President Andrés Manuel López Obrador's plan succeeds? U.S. drivers.

MEXICO CITY (CN) — Mexico announced plans Tuesday to end all oil exports by 2023, a bid by President Andrés Manuel López Obrador to make the country "self-sufficient" and better control the price of gasoline. 

The head of Mexico’s state-run oil company Pemex, Octavio Romero Oropeza, said during López Obrador's press conference that exports will begin to decrease as early as 2022, down to 435,000 barrels a day. Exports peaked at nearly 1.8 million barrels a day in 2004 but have declined since, hovering just over 1 million daily barrels since 2016.

At the same time, Mexico will also ramp up its domestic refining capacity in hopes of achieving the desired fuel self-sufficiency. Citing the opening of a new refinery in the southeastern state of Tabasco, Oropeza said that “practically 100% of Mexican crude will be refined in our country.”

But experts aren’t as positive that such self-sufficiency would be good for Mexico, and even doubt that such a goal is economically viable. 

“The supposed benefit of self-sufficiency doesn’t exist,” said Gabriela Siller Pagaza, head of economic analysis at the financial firm Banco Base.

Siller said that energy security, defined by the International Energy Agency as “the uninterrupted availability of energy sources at an affordable price,” is more important to Mexico than self-sufficiency. “So ending all petroleum exports doesn’t look like a real possibility.”

She added such a move would require incentivizing other export products or boosting the country’s tourism industry, but no such plans were discussed at Tuesday’s press conference. “If Mexico were to stop exporting oil without a backup plan to compensate for the loss of capital, the Mexican economy would be at grave risk.”

Eric Smith, associate director of the Tulane Energy Institute, agreed ending oil exports is not a feasible option for Mexico. He viewed the announcement as likely political posturing on the part of López Obrador, known colloquially as AMLO. 

“I think what’s going on is that AMLO is trying to convince Mexico to essentially add more value to the crude oil it produces, and in order to do that, it needs more refining capacity and petrochemical processing capacity, and things like that, all of which take capital,” he said. 

While initial reports said an end to Mexican oil exports would be most direly felt in Asian refineries, Smith said Mexico’s neighbor to the north would actually be hardest hit by such a move.

“We tend to forget that Louisiana and the Gulf Coast and the U.S. generally depends on heavy sour crudes, which we don’t produce, in order to run our big refineries,” he said. 

Mexico is the closest source of heavy sour crude oil to the United States, followed closely by Canada. But getting oil from Canada was nixed from the realm of possibilities when President Joe Biden canceled the Keystone XL pipeline as part of his sweeping climate action executive orders on his first day in office. 

The loss of imports from Mexico would force the United States to look farther away for heavy crude, to Russia, Saudi Arabia and West Africa. This would raise freight costs and, in the case of a drop in supply of heavy oil, lead to a reduction in refinery capacity. This one-two punch would result in higher prices at U.S. gas pumps. 

But Americans need not fret over soaring gas prices just yet. Smith said that the most likely situation is that Mexico will not end exports in 2023, adding that even if AMLO — who by Mexican law cannot be reelected — were to pull off the move, the next president in 2024 would presumably “have a more realistic view of things” and reverse course.

Courthouse News correspondent Cody Copeland is based in Mexico City.

Follow @copycopeland
Categories / Economy, Energy, International

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