Washington — Mexico depends too heavily on US oil and gas imports, an energy adviser to President-Elect Andres Manuel Lopez Obrador said Thursday while outlining the country's plans to build new refining capacity and take stock of its nascent energy reforms.
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Fluvio Ruiz Alarcon, a former board member of state-run Pemex and one of the developers of Lopez Obrado's energy policy, said Mexico depends on imports for as much as 70% of its oil product demand and more than 90% of natural gas consumption.
"We cannot have this dependence level," he said during the Inter-American Dialogue's Latin American energy conference in Washington, DC. "It is in this logic that we are going to build the new refinery. It's clearly not a business question but a security matter that we want to build this."
His comments come days after Pemex bought 1.4 million barrels of US Bakken crude for November loading, the first time since 2016 that Pemex has imported crude for its refineries.
Ruiz Alarcon told S&P Global Platts on the sidelines of the conference that Pemex may import more US crude when needed.
"We made the imports because the quality we have now in our domestic production doesn't fit the needs of our refiners," he said. "We have to make this mix to have the right diet for our refiners. As long as we don't produce the quality we need for our refineries, maybe we'll have to import more."
Lopez Obrador, however, criticized Pemex for importing US crude and called it a sign of the country's failed economic policies.
The incoming president has also sent mixed signals about his plans for the country's energy reforms allowing foreign investment to flow into the upstream and revitalizing drilling projects.
Ruiz Alarcon said the administration would not dismantle any existing contracts.
"We're going to absolutely respect the engagements we've already made with the contracts we're already working on," he told Platts.
"After this period we're going to decide if we continue with the bidding and on what terms. We are going to analyze other contract models according to the complexity and what should be the economic terms of these contracts."
'NOT GOING BACK TO MONOPOLY MODEL'
Asked about possible downgrades by Moody's and Fitch Ratings in response to Pemex's plans to build a new refinery, Ruiz Alarcon said "of course we are concerned about that."
"We have to communicate better our goals," he said. "In the case of a refinery, yes it's costly. It's costly when you buy insurance for your life or your car or your house. We have to socially buy this energy security."
He said Mexico wants to continue attracting foreign investment while also giving the state more control in Pemex to be a more active player.
"Of course we're not going back to the monopoly model," he said.
Duncan Wood, director of the Mexico Institute at the Woodrow Wilson International Center for Scholars, said later in the conference that Lopez Obrador has learned through campaigning and in the run-up to his inauguration that dismantling the energy reforms is a battle he cannot win.
"He's always been opposed to the reform, but now he's had to come to the realization that this is deeply embedded in the Mexican economic model at this point in time," Wood said. "To pull Mexico out of the energy reform, to completely reverse the energy reform from 2013 would leave a huge scar and damage Mexico's investment profile possibly beyond repair."
Wood said Lopez Obrador likely realizes that private investment since 2013 has become very important to Mexico, but he will be pressing for more.
"The clear message is, 'I'll respect your contracts but I'm not going to offer any more contracts, any more blocks until we see more investment flowing and we see the results of what's happened so far,'" he said.
-- Meghan Gordon, firstname.lastname@example.org
-- Edited by Jeff Mower, email@example.com