WH0’LL GET THE OIL?

Mexico’s find causes the U.S. some diplomatic headaches.

At one end of Chapultepec Park in Mexico City is a monument to los ninos, the child-heroes of the Revolution. At the other end is a monument to the expropriation of the oil companies in March 1938. The expropriation also had a child-hero; he was a U.S. citizen, ten years old, living in Guadalajara.

“I had eleven pesos in my piggy-bank,” recalls Fernando Casillas, now a successful businessman in Washington, “and when the expropriation was proclaimed 1 took it downtown to donate it to the government to help develop the oil. They put my picture in the paper and called me a hero.”

For 37 years, Petroleos Mexicanos (Pe-mex), the national oil company, labored to restore production to the levels achieved in the 1920s, when Mexico was the world’s second-largest producer. Meanwhile, Pemex had been building its own technical competence in exploration, production, and marketing; it is the world’s only integrated national oil company. “It used to be we’d be drilling on one side of the Rio Grande and watching the Mexicans drilling on the other side,” says a Dallas oilman, “and we’d laugh at them because they were so incompetent. We don’t laugh any more.”

In 1971, Rudesino Cantarel, a shrimp fisherman, walked into the Pemex office in Coatzacoalcos, Veracruz, to report an oil slick off the coast in the Gulf of Cam-peche. Pemex thanked the man and filed away his report, according to the British journal The Oilman, until, a few years later, vast oil-bearing structures were discovered in the nearby Mexican states of Chiapas and Tabasco. Pemex expects eventually to be getting more than 1.2 billion barrels a year out of the Chiapas-Tabasco fields alone. Following up on those discoveries, intensive exploration of the Gulf of Campeche was begun. Pemex director-general Jorge Diaz Serrano says the company has mapped “over 200 seismic structures [in the gulf], all of them with surprisingly gentle slopes, and thus quite larger than those of Reforma [Chiapas-Tabasco]. Should they be oil-bearing, they would dwarf the potential of Chiapas-Tabasco.” The gulf oil fields have been re-christened “Cantarel Fields.”

The extent of the Mexican oil finds was kept as quiet as possible until Díaz Serrano was appointed director-general by President Lopez Portillo in 1977. Diaz Serrano and the president have periodically announced ever-larger numbers of barrels of “proved,” “probable,” and “possible” reserves. The numbers are confirmed by independent experts, and big international bankers have publicly expressed the suspicion that the Mexicans are reporting as little as one-third of their discoveries. Lopez Portillo, in his state-of-the-nation address on September 1, pegged the reserves at 20 billion barrels proved, an additional 37 billion barrels probable, and a total of 200 billion barrels possible. Revenue from oil exports is projected at $7 billion in 1980 and $25 billion in 1990.

It makes economic sense for Mexico to sell most of its export oil and gas to the United States. Pipelines are a lot less expensive than tankers, and Mexican workers rather than foreign shipbuilders can be put to work on them. But Mexico will sell to the U.S. only at prevailing world prices, and only manana. Energy Secretary James Schlesinger earlier this year prevented a natural gas deal between Mexico and a consortium of Texas transmission companies. The companies had agreed to buy two billion cubic feet per day of Mexican gas at $2.60/ Mcf (1000 cubic feet), but the Carter administration was worried that the Canadians would be offended – they’re selling gas to the U.S. at $2.16/Mcf – and that the price would expose the fact that the administration’s energy bill calls for paying U.S. producers considerably less than the prevailing prices charged by foreign producers. Now that the energy bill has passed, discussions with the Mexicans have been reopened, but the U.S. probably will be able to import only a fraction of the gas that previously would have been available.

Miffed at Schlesinger’s action, the Mexican government ordered conversion of industries along the route of the new 48-inch gas pipeline that was to have gone from Chiapas to Reynosa, across the border from McAllen. The pipeline will now end at Monterrey, and much of its capacity will be diverted to those Mexican industries that have converted from oil to gas. The line can still be extended to Reynosa, if the U.S. comes to terms, but much of the gas will have been used along the way.

Another potential problem is that Mexico plans to play out its fields on a 30-year production schedule, rather than the normal 20 years, thus reducing the daily volume available for export. Mexico also seems determined to diversify its export markets so as not to become even more dependent on the United States than it is. Hard bargaining has gone on with France and with Japan in connection with huge crude-for-technology deals.

The domestic politics of oil have also contributed to U.S. unpreparedness in dealing with the potential Mexican oil colossus. The New Republic reported in August that the CIA alerted Ford administration officials to the scale of the Mexican discoveries in 1976, more than a year before they were made public, but that the alarms were ignored by both Ford and Carter in fashioning energy policy because public opinion would have turned even more deaf to energy-crisis rhetoric than it already was. By the time this article is in print, the National Security Council is supposed to have provided President Carter an options paper suggesting linkages of energy, trade, and immigration policy to soften up the Mexicans for a raid on their resources, but the Mexicans have shown they can be tough negotiators. The wisest view would appear to be that voiced by an anonymous State Department official to The New Republic:

“It’s like a fruit tree. If you don’t shake it too hard or too fast, pretty soon you’ll get nice fruit. There is a natural symbiosis here. We are Mexico’s natural market for oil. They are our natural supplier. If we play it cool, a nice relationship could develop naturally. But we could mess it up if we are too eager to tell them what to do.”

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