Oil shortage gives Mexico new strength

Press, 10 April 1979, Page 12

Oil shortage gives Mexico new strength

By

JOHN WILSON

The disruption of oil from Iran has helped to focus attention a quiet, but significant development of recent years — Mexico’s rise in the world oil stakes. Mexico now has the world’s sixth largest proven oil reserves — 40 billion barrels against Britain’s 19 billion and Saudi Arabia’s 167 billion. Mexico’s potential reserves may top even Saudi Arabia’s. It has probable reserves of another 44 billion barrels; its potential reserves might be between 200 and 300 billion barrels. Vast areas have yet to be drilled. Only about 10 per cent of the 2.5 million square kilometres of sedimentary land that could hold oil have been investigated. Discoveries in these areas could place Mexico at the head of the list of the coun-

tries with major reserves of oil. Mexico’s oil production is, at between 1 and 1.5 million barrels a day, only a small part of a total world daily consumption of 60 million barrels. By the mid 1980 s, Mexico’s production is expected to rise to about 4 million barrels a day. (Befc’e the shutdown, Iran was exporting an average of 5.7 million barrels of oil a day). The United States buys about 450.000 barrels of oil a day from Mexico — about 90 per cent of Mexico’s exports, worth each year abou’ $3 billion. The United States would like a lot more Mexican oil as production increases.

As early as 1980, Mexico’s exports may have risen to about one million barrels a day, but the United States will not. necessarily benefit from this increase.

Resentment against the United States runs deep in Mexico. It surfaced when President Carter visited Mexico in February — his reception was cold, even angry. The President bore the criticisms of his Mexican counterpart in good stead, but left convinced that the United States can no longer treat Mexico as a complacent client state. At present the United States provides Mexico with 60 per cent of its imports and buys 70 per cent of Mexico’s exports, but in line with its new political assertiveness, Mexico is courting other customers for its oil and other suppliers of its imports. Canada. France. Israel, Japan and Spain have all signed up for varying amounts of Mexican oil. Britain has agreed to exchange different types of

crude with Mexico. West Germany is also interested in Mexican oil.

Mexican oil has great attractions for the United States. Transport costs are low and supplies from Mexico would seem to be less vulnerable to disruption than supplies from the Middle East. Mexico is not yet a member of O.P.E.C. although this has not prevented it from charging O.P.E.C. and higher-than-O.P.E.C. prices. But political difficulties could prevent the United States gaining full advantage from having a major producer of oil on its doorstep. Natural gas is one of these issues. Mexico has enormous reserves of gas as well as oil. As oil production increases, so must production of natural gas which, if markets cannot be found for it, has to be flared (burnt off). A pipeline has already been built from oil

fields in southern Mexico towards the United States border to carry gas northwards.

But in 1977, the United States greatly offended Mexico by refusing to pay the price Mexico asked for its gas. This refusal led many Mexicans to conclude that the United States was still regarding Mexico as a client state that could be required to give the United States what it wanted. The other thorn -in the side of Mexican-American relations has nothing to do with energy. Each year between 600,000 and 800.000 Mexicans cross illegally into the United States. To Mexico this flow is a vital safety valve for a country with a huge unemployment problem. The repatriated earnings of Mexicans in the United States — about $3 billion a year — are of economic assistance to Mexico. Many Americans, however.

see these illegal Immigrants as competitors for jobs in a country which has its own unemployment problems. The communique issued at the end of President Carter s visit referred to both these problems, both countries committing themselves to resolving them in good faith.

But Mexico has no intention of pumping its oil as fast as the United States or other new customers need it. With Iran and Venezuela both providing sorry exampies of what not to do with floods of petrodollars, the Mexicans are determined to sell oil only in quantities to produce a revenue which the Mexican economy can absorb without inflation and increased social tension. Pemex plans to lift production only to 2.2 million barrels a day by the end of 1980 and then to let production rise only slowly to perhaps’ 4 million barrels a day by the mid 1980 s.