Modest proposals (PEMEX)

Until about three years ago, Mexican gasoline was not such a great buy. People forget that it wasn’t all that long ago that Mexican drivers would cross into the U.S. to fill their tank, and PEMEX regularly had to tweak the pump price in the border region. To keep inflation in check, and to help the Mexican auto industry, gas prices have always been subsidized… one great advantage of living in an oil exporting state. Now, with PEMEX said to be starved for operating capital, very few restrictions on foreign automobiles (especially the large engine ones that used to be rare once to got away from the U.S. border and the gringo ghettos), it makes less and less sense for Mexican gasoline to be sold so low that it has driven up demand to a point where PEMEX is having to import gas… and sell it at a loss.

Bénédicte Larré, Senior economist at the Mexican Economics Institute of the Organization for Economic Cooperation and Development (OECD) sees the contradiction. Larré points out that raising pump prices would have some economic impact, primarily on those driving large vehicles. While his proposal — offsetting the inflationary pressure with more aid to the poor — makes sense, it seems that subsidizing fuel for public transit would keep the price rise from being felt by anyone except those who are driving the bigger gas guzzlers… frescas and some farmers (who could be helped by rural poverty programs). The fresas would switch to smaller autos — which is what Mexico is producing.

Gasoline prices right now work out to about USD 2.60 a gallon, which is ridiculously low.

Geologist María Fernanda Campa has an even more radical — and simple — idea. She suggested to the Mexican Senate that PEMEX simply stop exporting oil. Campa’s argument is based on the idea that PEMEX produces more than enough oil and generates enough capital, to more than meet domestic needs and leave room for growth.

It sounds nutty, but when I think about it, Campa’s idea is brilliant. Where PEMEX is hemorrhaging money is in maintaining and expanding export capability. It just cuts the losses. And, if oil prices stay high (and they will), Mexico might be better off selling oil-based products than just crude oil… or even gasoline. One word: plastics.

Using oil domestically would also buy Mexico the time to develop other energy sources — wind, geothermal, tidal and solar (Zacatecas, being mostly desert highlands, is theoretically one of the best places on the planet for solar power production. And, having a net population loss, new industries could shift people from heavily populated areas where energy has to now be imported — like the Federal District).

The assumption all along has been that PEMEX has to export oil to the United States. No it doesn’t. And, it doesn’t have to import gasoline from Shell either. Both suggestions probably would deeply hurt the U.S. economy, but look at the bright side. Maybe the Mexican congress can loan the U.S. money to deal with the drug problem. Provided they change their legal system and give the Chamber of Deputies oversight, naturally.