Chicontepec debate could redefine energy sector

By Jeremy Martin
Energy expert, Institute of the Americas

There are times when something is happening around us that we might not deem as monumental as history later judges.

With life’s daily sturm und drang, especially during these trying financial times, the debate unfolding around Pemex’s development of the Chicontepec oil fields might not appear at first glance to be such an occurrence. 

Various developments suggest otherwise. Indeed, Mexico’s debate over Chicontepec could turn out to be a historical marker for the nation’s energy sector.

Underscored by the unexpected change at the top of Pemex in early September, there has been an increasing restlessness with the continued decline in oil production and missed targets at the national oil company.

What had long been an implicit message from President Calderon and Energy Minister Georgina Kessel quickly became explicit: What is happening at Chicontepec and why does it cost so much to be falling so short?

To understand their angst, let’s review the numbers:  Pemex has spent approximately $11.1 billion dollars and has earmarked over $2 billion in 2009 alone for Chicontepec.

Pemex set a 70,000 barrel per day target from Chicontepec in 2009 but had only hit 30,000 barrels per day by the end of September.

As the demand for Chicontepec accountability became much more overt – including public comments by Secretary Kessel – the newly created Comision Nacional de Hidrocarburos (CNH) also began to weigh in. And it did so in a very public and direct fashion.

CNH chief Juan Carlos Zepeda minced no words by declaring, "The project should be stopped and reinstated (until) there is a real development plan."

These comments were followed by questions from other CNH members as to Pemex’s investment and technical plans for Chicontepec.

Critics contend that this was merely an effort by the CNH to flex its muscles as the new-kid-on-the oil block. Perhaps, but flex away they have -- and with good reason as the nation’s newly established oil watchdog.

Proving that CNH and others are not lone voices, the changes on Pemex’s Board of Directors have also figured in the evolving Chicontepec debate. Fluvio Ruiz, who joined the expanded board earlier this year as an independent member stated in an interview that Pemex was far too “optimistic” about the projects.

The awareness of the issues surrounding Chicontepec is very important. This debate would not be happening right now if there had not been energy reform legislation passed last year in Mexico. 

And, let’s be honest: This is a debate worth having, if for no other reason that it will force the various levels of bureaucracy in Mexico to address a public policy disaster. 

For years, the clarion call surrounding Pemex was that it needed the ability to spend more money. But after spending huge sums on Chicontepec, it reminds us of a basic economics lesson: More money does not always mean a positive return on investment.

And as a CEO of an oil field service company said during a recent conference call: “When there’s that amount of noise…Pemex will probably have to look at their strategy.” 

This “noise” is nothing if not a din that underscores the healthiness of a pluralistic debate. Moreover, as the world prepares for climate change discussions in Copenhagen in December the International Energy Agency has used its annual report as a plea for efforts to address emissions and fossil fuel dependency.

But more relevant might be the fact that Plan B for Copenhagen has suddenly become Mexico City – the site of the next international climate change summit.

The debate over Chicontepec and Mexico’s steady conversion to oil importer is clearly unfolding against the larger backdrop of a global energy transition and Mexico’s desire under President Calderon to be a world leader on the issue of climate change.

Mexico should seize this opportunity to use Chicontepec as a historic marker in its domestic energy debate. In doing so, it will have much to tout at the next stop of the climate change world tour and might very well redefine its energy future.