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Energy Security In Mexico: Problems and Implications

By Jude Clemente

Energy Security In Mexico: Problems and Implications In contemporary societies, energy security has become the cornerstone of national security. Access to reliable and affordable energy supplies is fundamental not only to national defense, but also economic growth and political stability. Thus, threats to a nation's energy infrastructure have far reaching implications for the entire socioeconomic system.

Mexico provides an important example of how threats to the energy security of a major oil producer not only have broad ramifications for the nation itself, but for the United States and the rest of the world as well.
Why Mexico's Energy Security is Important
Oil has rapidly become Mexico's most precious natural resource – accounting for about 27% of total exports in 2006 compared to only 8% in 2000.

1.-Oil export revenues support the Mexican economy – state-owned Petróleos Mexicanos (Pemex) contributed $79 billion in taxes and royalties to the Mexican government. Oil revenues usually constitute approximately 40% of the Federal budget.

2.-Petrodollars are being used to develop a middle class as well as lift millions out of poverty. Social programs in Mexico have been dramatically expanded through billions of dollars in oil income.

3.- Problems in Mexico's oil sector would disrupt both the U.S. and world markets. Mexico has been a consistent top-three supplier to the U.S. and supplies about 4% to the increasingly inelastic global supply chain.

With the 2004 peaking of Cantarell, the second most productive oil field in the world and the source of half of Mexico's oil, national production faces terminal decline. The ongoing decrease now confronting Mexico has been widely documented in the energy industry and has become part of the U.S. Energy Information Administration's (EIA) International Energy Outlook 2008 . Further, energy security is the looming shadow over the scene. The rapid decline in Mexico's proven oil reserves, about 75% since 1997, is taking its toll and scheduled deliveries to several refineries in the U.S. were cancelled in July.
The literature, however, has been lacking in pieces detailing how Mexico's production problems are exacerbated by the absence of a comprehensive national security strategy to safeguard the country's energy infrastructure. Pemex energy facilities are soft targets for the domestic terrorist group that has already attacked it as well as those international terrorist networks that have threatened it. The present analysis focuses on four overarching dimensions to Mexico's increasingly worrisome energy security situation: 1) the spectrum of expanding vulnerability 2) lack of security from institutional lag 3) external threats and 4) internal threats.
1. The Spectrum of Increasing Vulnerability
As the relatively concentrated 70-square-mile Cantarell oil field falls into terminal decline, energy systems more geographically dispersed and more susceptible to attack will be relied on to compensate, namely the Chicontepec Basin. Figure 1 illustrates this onshore oil region, northeast of Mexico City, that holds about 54% of Mexico's non-Cantarell known reserves. The area will be difficult to protect because it stretches more than 2,400 square miles. Further, because of complex geology, production projects at the Basin will need to be especially infrastructure intensive. Overall, the task of building and protecting an entire network of pipelines and processing facilities appears overwhelming for a nation without a coherent energy security plan.

Even now, Mexico faces a challenging pipeline security challenge of over 17,000 miles of oil and 8,235 miles of natural gas pipelines (see Figure 1). The country's energy infrastructure needs a desperate upgrade. Over the past decade, Pemex has slashed its maintenance expenditures throughout the country. In 1997, the company had a budget of $2.7 billion for maintenance; in 2007 the budget was only $1 billion. Funding decreases have become the norm at Pemex because the Federal government increasingly siphons off energy revenues to support social programs.

On other fronts of vulnerability: (a) it is likely that the same corruption that has prevented the country from controlling the drug violence within its borders will continue to prevent it from effectively protecting its energy infrastructure, (b) the financial crisis that Pemex currently faces (over $111 billion in debt as of April 2008) will further degrade Mexico's ability to respond and protect and (c) state-owned Pemex makes an attractive target for a wide range of dissatisfied Mexicans because damage to the state monopoly directly affects the Federal government.
2. Lack of Security From Institutional Lag
Mexico has not followed the post-September 11th global path of state reform on national security. The country has fallen behind other major oil producers (e.g. Saudi Arabia) in protecting its energy installations. The political infighting that has been a constant the past eight years in Mexico remains a major reason the country has been unable to articulate any cogent strategy aimed at protecting its energy system. Mexico exists in a political and institutional vacuum far removed from its North American allies.
Many of Mexico's security issues stem from the political differences that continue to divide the country. In 2000, conservative Vicente Fox, of the National Action Party (PAN), became president, ending the Institutional Revolutionary Party's (PRI) seven-decade uninterrupted rule. Under Mexico's Constitution it is the responsibility of the President to conduct foreign policy, but Fox left it up to a member of his cabinet who viewed the military as the driving force behind his national security plan. Military leaders were reluctant to comply, and new institutional arrangements by the Fox administration created rifts within the Federal government. Fox did not have a majority in either Mexico's Chamber of Deputies or the Senate, and his administration and the opposition in Congress consistently battled over political reforms. Protecting the country's energy infrastructure quickly became an afterthought.
The following quotes from a wide-ranging group of Mexican security and energy analysts illustrate that the country has major security issues when it comes to protecting its energy infrastructure:

“Nobody's in charge of the pipeline system. Nobody is accountable for it” – George Baker, publisher of the Houston newsletter Mexico Energy Intelligence
“The bottom line is that Mexico does not have an internal security strategy” – Abelardo Rodriquez Sumano, national security expert at the Technological Institute of Monterrey
"To try and guard this extensive and complicated network of pipelines with police or soldiers is simply impossible” – Sergio Sarmiento, energy columnist
“Pemex still needs to improve security intelligence in a big way” – Elena Azaola, national security expert at the Center of Investigations and Social Anthropological Studies
"These stations are not protected at all” – Agustin Humman, Vice-President of the Mexican Natural Gas Association, on Pemex leaving several visible, above ground energy stations unguarded

In 2006, former Energy Minister Felipe Calderón, also of the PAN, became the 65th President by narrowly defeated former Mexico City mayor Andrés Manuel López Obrador of the Party of the Democratic Revolution (PRD). Two years later, this highly controversial election still divides the country. Calderón's most recent push to allow more private involvement in Mexico's oil industry has been met with great opposition from politicians and citizens alike – mostly from the PRI and PRD. Pemex has been an important symbol of national sovereignty since its inception in 1938 as the outgrowth of Mexico's decision to nationalize its oil resources.
3. External Threats
A. Terrorism
In February of 2007, Al-Qaeda called on jihadists to attack energy facilities that supply oil to the United States. This direct order from Osama Bin Laden called for attacks against “interests that provide the Crusaders with oil.” By name, these interests included Mexico because it is one of the United States' most critical suppliers.
Bin Laden stated jihadists “must hit the oil interests in all of the regions that the United States benefits from, not in the Middle East only.”
Immediately following this threat, Mexico announced that its navy was on alert and had stepped up surveillance of offshore oil platforms and port facilities. A subsequent report by McClatchy Newspapers, however, found that reporters could “approach Mexican oil installations virtually unchallenged.”
B. Open Borders
Mexico's southern border with Guatemala remains its most exploited surreptitious entrance point. Dense jungles in the region make effective law enforcement all the more difficult. In an attempt to obtain jobs vacated by Mexicans leaving for work in the United States, migrants from various Latin American countries enter Mexico from the south. Crossing Mexico's southern border is as simple as hopping a fence or rafting for only a few minutes.
“Mexico is incapable of establishing a security perimeter for North America in its southern border with Guatemala in order to stop Central American aliens,” said Manuel Pérez Rocha, an associate fellow of the Institute for Policy Studies.
In recent years, detentions and deportations have risen in Mexico, but officials admit corrupt law enforcement officials often assist undocumented immigrant smugglers. Mexico's Foreign Minister recently conceded that the country needed to review its own immigration laws in the hope of gaining legitimacy when presenting its viewpoint on immigration to the United States. Mexico's undocumented immigration problem is exacerbated by the fact that its officials rarely speak on the matter and hard numbers are nearly impossible to obtain.
When Fox was elected in 2000, he promised his administration would crack down on undocumented immigrants coming in from Mexico's southern border. This pledge was part of the negotiations made with the United States regarding legal status for undocumented Mexicans in the U.S. As part of the agreement, the U.S. offered two million dollars a year in technical assistance and training to increase security along Mexico's southern border. In 2006, however, there were less than 450 agents patrolling the more than 200 official and unofficial checkpoints along Mexico's border with Guatemala.
A lack of technology, inadequate human resources, and the corruption of some local officials have all made it easier to enter Mexico. Developing security strategies to become more aware of who is entering their country is now of the utmost importance for Mexican authorities, as they struggle to protect an extensive energy infrastructure that has already been victimized by terrorists.
C. Air and Sea
Mexico is capable of monitoring less than one-half of its airspace. This security gap has helped allow drug cartels to continue to thrive in the country. Aviation movements within Mexico often go unchecked because of a lack of communication. This deficiency within Mexico's security structure is one U.S. officials have complained about for years. When it comes to information sharing, such as passenger lists and transits routes for airlines, Mexico remains isolated from the United States and Canada. Mexico is not a member of the North American Aerospace Defense Command (NORAD).
Victor “Gene” Renuart, Commander of NORAD has stated: “Energy security is a perfect example. [The Mexicans] have offshore drilling areas. When [they], like many other nations, hear Al-Qaeda say, ‘We will attack the energy resources of countries which are sympathetic to the West,' it makes people nervous, because they've demonstrated at least an ability to have an impact there … [The Mexicans] are looking at ways to modernize their naval components, their air and surface defense of key infrastructure elements.”
Mexican ports remain exposed despite U.S. efforts to help. As the seventh anniversary of September 11th approaches, there is still no system in place to safeguard the country's ports. The security equipment that Mexico does possess is usually donated by the United States. Additionally, only a small percentage of cargo is examined abroad before being shipped to Mexico.
There is currently a massive project being developed to construct a mega-port at Punta Colonet, 125 miles south of Tijuana. This port is expected to be the combined size of the two largest ports in the United States – Los Angeles and Long Beach. Many remain skeptical that Mexico will be able to meet this huge jump in security demand because the country's current largest port, Manzanillo, annually handles less than one-third of the amount of cargo Los Angeles' does alone.
4. Internal Threats
A. EPR In July, 2007. The Popular Revolutionary Army (EPR) bombed natural gas pipelines and shut down one of Mexico's main industrial regions. The attacks crippled an important oil pipeline in an operation that indicated extensive knowledge of Mexico's energy infrastructure. The group claimed “self-defense,” and demanded the release of two imprisoned group members. Mexico's pipeline infrastructure is just too extensive for its inadequate security forces to thoroughly protect (see Figure 1).
Pipeline attacks are especially devastating for natural gas transportation because this fuel cannot be stored or shipped by truck. The explosives used in July were similar to ones attributed to the EPR in attacks at three different locations in Mexico City the previous year. The July attacks blocked the flow of natural gas and oil between Mexico City and Guadalajara. Production of U.S. automakers and other major manufacturers in the affected area was halted. The National Security and Investigation Center (CISEN) was apparently taken by surprise despite previous terrorist threats. CISEN is Mexico's agency in charge of intelligence, risk alerts, and the prevention of acts that could harm national security.
The Mexican government was sent scrambling to increase security at strategic installations across the country. It remains unclear exactly what measures were taken, but they were proven ineffective because the EPR was able to penetrate them just two months later – showing the enormity of the energy security task facing Mexico.
The EPR struck again in the oil-rich state of Veracruz in September, 2007 (see Figure 1). Explosions shut down pipelines carrying oil and natural gas to and from surrounding states. A dozen pipelines were crippled by the blasts and 20,000 people were evacuated in the EPR's “prolonged people's war” against the “anti-people government.” There were hundreds of millions of dollars lost in Mexican energy production alone.
B. Dissension
"Up until now, the people do not see any benefit from the [energy] resources that are generated, because these are monopolized by the state, the national and transnational private sector, and by the different groups holding power in the country," the EPR said in July, 2007.
Mexico's continuing social conflict – largely due to the historical gap between its rich and poor – could do much more damage than merely prevent the needed legislative change in its oil sector. The rationale behind the ongoing attacks on energy infrastructure in Nigeria and Iraq may drive similar ones in Mexico. Despite the rise of social programs, profits from oil sales continue to be largely unrecognized by the Mexican people, leading to a feeling of disenfranchisement within the citizenry. The common belief that their government is stealing their birthright is one that unites many Mexicans. We are now seeing a combination of domestic terrorists and powerful criminal organizations capitalize on these perceived inequities.
C. Bunkering
In Nigeria, the largest oil producer in Africa, the chief source of revenue from oil attacks is the ransoming of foreign contractors that work within the oil industry. In Mexico, we may see the same problem emerge if outside companies are given an investment in the country's energy production. After Colombia, Mexico has the highest kidnapping rate in the world. Pemex may see “illegal bunkering” become a common occurrence. This term describes unhappy consumers stealing various hydrocarbons directly from production pipelines. In fact, Pemex has already recently found illegal pipe-taps in Veracruz for siphoning off gasoline.
The energy infrastructure intensive areas (see Figure 1) of Oaxaca, Veracruz, and Mexico City (Federal District) have seen massive anti-Calderón protests and remain consistent in their PRI and PRD loyalties. In a nonbonding referendum vote at the end of July, 80% of the people in Mexico City answered a resounding “no” to Calderón's proposal to permit Pemex to expand partnerships with private firms. Subsequent votes have had similar results.
Conclusion
Mexico's questionable energy security threatens to compound the country's problems with oil production. This interaction will further erode the country's ability to reverse the downhill slide of the oil sector. Mexico faces internal and external threats to energy infrastructure but has no effective plan to counter such risks. In fact, securing infrastructure is becoming even less of a priority because Pemex's whole focus has shifted entirely to finding more oil and increasing overall production.
Energy security is now precarious. The court of public opinion has spoken: no expanded partnerships with private companies. Regardless of what lawmakers decide, millions of Mexicans will feel even more disenfranchised. This sentiment could have dire consequences for a country struggling to protect an industry vital to socioeconomic progress and the quality of life.

Jude Clemente is an international energy security analyst. He holds a B.A. in Political Science from Penn State University and an M.S. in Homeland Security from SDSU. At the present is a security and technical writer in the Homeland Security Department at San Diego State University and is a member of the National Defense Transportation Association and energy advisor to B and S Corporation and Penn State's Research Project on North American Energy Supply. Petroleumworld does not necessarily share these views.

Editor's Note: This commentary was originally published by Energy Pulse, on 10/10/2008. Petroleumworld reprint this article in the interest of our readers.

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Petroleumworld News 10/18/08

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