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Deer Park: a Shell game or good business?

1 June 2021

” [Oil] is the devil’s excrement!”

(Former Venezuelan Oil Minister, Juan Pablo Pérez Alfonzo, 1975)

From Drake’s first well in 1859 up through the present, it’s been debatable whether oil has been more a curse or a blessing to those who have it. Certainly, it’s been profitable to those who WANT IT, and MARKET it, but as to those whose “luck” it is to be sitting on it…cue bono ?

Within 10 years of the gusher in Titusville, prospectors were already working here in Mexico. There wasn’t much of a market for the stuff locally, but with the (foreign built) railways providing access to the US market, oil became a big business… for foreigners. “In 1889, the Veracruz legislature passed a law titled Ley sobre subdivision de la propiedad territorial, under which the state gave land titles to private owners. The privatization of land allowed state to declare any land that was not privatized to be public land. In 1883, the Mexican Congress passed the Ley de Colonización, which allowed private land companies to survey public lands for the purpose of subdivision and settlement.” (yeah… Wikipedia. But most of us already knew this). Of course, the land wasn’t just sitting there over a lake of oil… people had been living there and using it for other purposes. BUT… there was money to be made, and that’s that. Money to be made… by foreigner “investors” who never went near the place, in nearly all cases. And… as we all know… the resentment it caused was more than just another of a series of complaints lodged against the old regime, leading up to the Revolution of 1910-20.

Once the genie’s out of the bottle… or the gusher is out of the rock… there’s no do-over. Certainly the oil industry had a tremendous effect on Mexico, turning it from an agrian nation into a manufacuring one. The British decision (by First Lord of the Admiralty, Winston Chuchill) to fuel it’s navy with oil, and not coal led to “complications” during our revolution, with Britian “demanding” that Mexico’s oil continue to supply their navy (the largest foreign oil company at the time was a British firm) even though what government the country had that could claim legitimacy had no stake it that squabble among the European imperial powers, and, frankly, preferred the Germans anyway.

Although the British might control the largest single oil company, by far United States businesses were the largest exporters… and despite having plenty of resources to plunder in their own country, by 1917 needed foreign imports to fuel their own growing consumption demands… which were also growing in Mexico (and everywhere else in the world by the 1920s). With the two imperial powers (or rather, the corporations to which the imperial governments answered) controlling a large part of the Mexican economy, it was forced, if for recognition by the United States as much as any other reason, into the humilating Bucarelli Agreement of 1923, extending leases on oil fields pre-dating the new Mexican constition which had clearly stated (Article 27) that the oil in the ground, like other natural resources, was Mexican property.

The oil producers basically ignored the Mexican government (even financing their own mercerary army, and functioning as a state within the state). Until (to quote Machete), they messed with the wrong Mexican… Lazaro Cardenas. The timing was perfect. Although the imperial governments could threaten Mexico in 1938, with their own need for oil to keep their ships and airplanes and tanks and truck running in the coming war, they couldn’t afford to alienate what had becoming one of the largest single oil companies in the world.

Whether PEMEX was a curse or a blessing (and more than a bit of both), it became a model for those countries who wanted control… or at least some control… over their own resources. And, those countries realized, a political weapon. Who needs a huge army, if the armies that depend on you can’t function? And.. with the profits staying at home… good business: at least for the managers.

PEMEX went into a tailspin after the first “OIl Crisis” of 1973, when producers (mostly the Islamic nations) played hardball by cutting production as a way of “punishing” the western powers for their support for Israel. Oil prices skyrocketed after the crisis, and in 1976, just after Mexican President Lopez Portillo bragged that “those countries with the oil have the money to spend” just as prices began to fall… and fall… and fall. Ironically, in part due to the discovery of new Mexican fields in the late 1970s.

And… even more to that “one neat trick” of continually pulling money out of PEMEX for more… uh… pressing needs (than, say, the PEMEX hospital system, the schools, the National Politechnical Institute set up by Cardenas to train professionals to manage the resource, the general fund), like buying votes and lining the pockets of PEMEX directors, tame union leaders and select politicians.

And… then came Carlos Salinas… a true believer in the neo-liberal economic theories taught at Harvard and elsewhere. Better the (mis) management of “private enterprise” than that of the state for some reason. While privatizing PEMEX would be close to impossible (the people, even the ones prone to sell their votes for a potty message, were unlikely to support that), but he could — and did — push through the idea that PEMEX was not a resource management service, but had to be run as a regular coporate business. That included, of course, as the thining in business circles was (and largely still is) assessing managers on their quarterly and annual statements and … the state being the shareholder… short term profit and loss.

Short-term being the key word here. Enamoured of neo-liberalism, and besotted with the thought of foreign investments once the NAFTA treaty was signed, it was only a matter of time before someone had the bright idea of … while on paper keeping PEMEX under state ownership, spinning off subsidiaries that could take on foreign “partners”. That part of managing the oil resources was to provide gasoline, rather than invest in the upkeep and renovation of existing refineries, partnering with SHELL ,,, and then reimporting the gasoline from Texas somehow made sense. After all, refineries cost money that could be better invested in… supporting the ruling party’s hold on power, or slipped into off-shore bank accounts of favored officials (or both). That PEMEX, being treated as a business, and not a state institution, allowed for it, at least in public, to be the state’s largest tax payer, though, running at a loss, the SHELL game (selling oil, at a discounted price to SHELL, paying them to refine it, and buying back the finished product to re-import to Mexico to sell at a subsidized price) was part of a larger shell game… benefiting a few politicians and their families, but no one else.

López Obrador has been criticized for being something of a throw-back to earlier Mexican politicians, and in a sense he is. Mexican politicians used to pride themselves on knowing national history, and alluding to events of the past in their campaigns, secure in their knowledge that the people understood the reference. With privatization losing much of its cachet among voters, and even the elites beginning to question the premises of neoliberalism, saving PEMEX, if for no other reason than as a historical artifact, Calderón promised… to great fanfare… to build six refineries, both on the premise that a “first world” Mexico would need more gasoline to feed the demand of a growing middle-class lifestyle (a car in every garage) and in small measure, to “save” PEMEX. After opening site bids (based it seems on what politicians had interests in what available properties)… exactly ONE spot was chosen, a wall built around the site and… left it for Enrique Peña Nieto to come up with something “new and different”: using funds channeled through PEMEX to bribe congress into approving another “reform” that would in theory make more gasoline at competitive prices available… allowing foreign companies to open their own gas stations. Which did nothing for gasoline prices, nor for PEMEX. On top of this, there ws a growing market for “black market” gasoline, and even those tasked by the Peña Nieto adminstration with safeguarding the devil’s excrament, turned “huachicolero”… gas thieves. An estimated 10% of the nation’s gasoline was being siphoned off from clandestine taps into pipelines and even hijacked fuel trucks. In 2018, during the run-up to the presidential election, that throwback, AMLO, reached back, not to the most recent event, but to Calderón’s six-refinery promise.

It was good politics: in Mexico, those who remember the past, are going to milk it for all it’s worth. Laying out the sins of omission by the previous administrations, among them the failure to build refineries, propelled AMLO to Los Pinos (which he promply closed, and moved into a more modest apartment in the Palacio Nacional). Beginning construction on at least one new refinery gave AMLO the cover to being phase two… cracking down on the huachicoleros (which caused a short-term gasoline shortage, mostly though panic buying), closing stations that were selling stolen gasoline… while the promise of at least one new refinery was publicized as evidence that — if not today, than soon — PEMEX oil, turned into PEMEX gasoline would be available, and assuaging national pride among those that saw the seeming inability of Mexico and PEMEX to handle its own resources as humiliating. Which it is.

With congressional elections in the offing (the voters go to the polls this coming Sunday, 6 June) likely to result in an increased presence of the opposition in congress, simply buying out SHELL’s majority share of the Deer Park refinery in Texas City was a dramatic move to bolster support for AMLO’s own Morena party. It’s perfectly true that six refineries haven’t been built (or even started)… YET. But where there was one, and a couple working at about 30%, now there is one being built (and producing at 50%) and a second… lo and behold… working at 100%.

Yes, PEMEX probably paid more than it should, and, yes, SHELL wanted to get rid of it anyway (or, had to… being a Dutch company, and under a Dutch court order to drastically reduce its output of fossil fuels) but the overpayment (about a quarter billion US dollars) can be made up by not having to pay SHELL that had to make a profit out of its refining costs… an overhead on top of the overhead that PEMEX would have doing the refining itself. And, it won’t be increasing any country’s carbon footprint of emissions overall. The gasoline that Deer Park wasn’t sending back to Mexico was going somewhere else, and Mexico won’t be burning more gasoline, just more of its own, with less from sources other than that PEMEX refines (another savings for the state run oil company). Win-win.

Except for the political opposition.

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