Peak Mexico?

Authored by Albert Bates via Medium.com,

The transformation of México in the second half of the 20th century reads like a fairy tale. The country went from being a tinhorn dictator puppet colony of the Great Powers — a lampoon backdrop in the films of Cantinflas — to a prosperous and trendy middle class democratic socialist country with less absolute poverty than the United States.

 

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In recent years nearly as many USAnians have flocked to the medical centers, second home sites and loan-free universities of México as there are would-be gardeners and tradesmen slipping North. Not that long ago it appeared as though the two countries were in the process of exchanging populations.

In Bottleneck: Humanity’s Impending Impasse, William R. Catton called our modern humans Homo colossus — those among our kind living in industrial countries and consuming massive amounts of fossil fuels to motivate and control machines that do orders of magnitude more work than humans or animals could do otherwise. Homo colossus is gradually replacing Homo sapiens as industrial development spreads like a cancer across the Earth.

Fossil fuels artificially boosted carrying capacity for human occupancy, at least to outward appearances. It could never last.

Contrary to what Elon Musk, Peter Diamandis or other technoutopians might tell you, there is zero likelihood that current solar income can replace concentrates of ancient sunlight gathered and stored over millions of years. Nuclear power, with its dwindling supply-chain, nation-killing meltdowns, and Easy-Bake bomb potential, is a death wish. Renewables simply will not scale to a consumer society trying to fulfill the desires of seven billion Homo colossus. A reorganization is coming.

One thing is certain. While Homo sapiens, with a stable population under one billion, might have stood a reasonable chance of being around for another two or three million years, Homo colossus hasn’t a prayer.

In 2004, the Astronomer Royal in Britain, Sir Martin Rees, assigned humanity about a 50/50 chance of surviving through the 21st century. He was being generous. Earth has already passed tipping points in seven of ten essential life support systems for humans — biodiversity, climate change, nitrogen cycle, phosphorus cycle, ocean acidity, land fertility, and freshwater availability — and the other three — ozone, atmospheric aerosols and chemical/radioactive pollution — have yet to be fully quantified but may have already been exceeded as well.

In evolutionary biology a population bottleneck is where radical change to the environment causes a species to lose of all but the most hardy of its population; hardy, that is, in terms of the selection pressures arising from the change. If there are no sufficiently hardy individuals left, or the ones that manage to survive cannot reproduce sufficiently to repopulate, the species goes extinct. We are quickly approaching that reckoning but we have yet to understand what is happening, never mind change course.

Mexico is a poster child for the present schizophrenia. On November 3rd the national oil company, Petróleos Mexicanos (Pemex), made headlines across the world: “Pemex makes México’s biggest onshore oil find in 15 years. ” México’s President, Enrique Peña Nieto personally made that announcement, standing shoulder-to-shoulder with his energy minister, Pemex’ chief executive, and a range of other government and union officials at the Tula refinery in Veracruz. He proudly announced that Pemex made its historic discovery by drilling its onshore Ixachi well near the municipality of Cosamaloapan, and that the overall field is believed to hold some 350 million barrels of proven, probable and possible reserves.

Pause for a second and consider that number. True, it is the biggest find in 15 years. Equally true it represents less than one year of the oil México produced at its peak, in 2003, and perhaps 18 months worth at present rates of production. In the United States, its largest trading partner, it would keep the lights on and the filling stations operating for all of 17 days, 18 hours and 20 minutes, unless it arrived at a holiday travel time.

But even the number 350 million is suspect. First, that number is “proven, probable and possible;” three very different categories. If it was all proven reserves, bankers would be lining up to lend capital to develop the find. Instead, México has had to go to Big Oil looking for venture partners, and dropped its expectations from a majority holding, to 49% and now 40% and still no takers.

México has a long history of remaining independent of the oil giants, going back to the 1930s, when Lázaro Cárdenas refused to be extorted by Franklin Roosevelt and built his own refineries. The Mexican miracle came in 1972, when fisherman Rudesindo Cantarell Jiménez complained to the authorities that his nets were clogged with black tar.

By 1981 the Cantarell complex was producing 1.16 million barrels per day (180,000 m3/d). However, the production rate dropped to 1 million barrels per day (160,000 m3/d) in 1995. The nitrogen injection project, including the largest nitrogen plant in the world, installed onshore at Atasta Campeche, started operating in 2000, and it increased the production rate to 1.6 million barrels per day (250,000 m3/d), to 1.9 million barrels per day (300,000 m3/d) in 2002 and to 2.1 million barrels per day (330,000 m3/d) of output in 2003, which ranked Cantarell the second fastest producing oil field in the world behind Ghawar Field in Saudi Arabia. However, Cantarell had much smaller oil reserves than Ghawar, so production began to decline rapidly in the second half of the decade. Unfortunately, the nitrogen has migrated into the gas, lowering its heating value and thus, economic value, and soon will require treatment to remove the nitrogen from the gas, to be able to use the gas as a fuel.

Wikipedia

Pemex spent US$6 billion in 2017 to arrest Cantarell’s decline at around 325,000 nitrogen-contaminated barrels per day but nothing can prevent eventual collapse of the field. The shortfall is having a negative effect on México’s annual government budget, its sovereign-credit rating, and the exchange rate of the peso (it dropped 25% just this week). México’s trade balance was 10.7 billion dollars in the red after the first 11 months of 2017, 50.6 percent of that from imported petroleum, which explains why the small discovery in Veracruz was so important to Peña Nieto. Earlier in the year an attempted auction of offshore leases — a political football punted away by every president prior to Peña Nieto — failed when no buyers showed up for the plays being offered. Another auction is scheduled for January.

The billions of pesos México had been receiving for crude export revenue once contributed as much as 40 percent of its budget. It paved roads, built parks and schools, and allowed still more exploration for new reserves. Now that figure has dropped to under 20 percent and the pinch is being felt at every level of society. The public has lost confidence in police and only 7 out of 100 crimes are reported. Of those reported , only 4.46 percent are caught and convicted. Police are unable or unwilling to stem gang violence.

“The high levels of violence not seen in years and the impunity with which crimes are treated put investment at risk,” a spokesman for the Mexican wine industry told the Financial Times of London. The director of the National Association of Private Transportation, which includes the main users of road freight transport, told the newspaper that it is not only the robberies, but that criminals “are selling these products in illegal markets below the price of production and compete with our products.”

Gang violence hurts tourism, México’s second cash cow. Rising petroleum prices will kill tourism, and not just in México. As one big field after another goes into terminal decline, and the best technology in the world cannot find more, squeeze more, or make more at a price anyone can afford, the airline industry will be one of the first to feel the higher prices. Bargain flights from Paris to Cancun may be replaced by train trips to mountain castles in Bavaria.

It is hard not to notice that all of México’s most popular tourist destinations lie closer to the sea than New York City or Miami. The most intense Atlantic Basin storm ever measured, Hurricane Wilma, hit the Mayan Riviera in 2005, dropping beachfront high-rises like dominoes.

How is the Mexican government responding? Drill, baby, drill.

When Peña Nieto beat populist Andres Manuel Lopez Obrador by less than one percent in the election of 2006, he ended the long-running feud between national oil company champions and bankers by siding with the bankers. He introduced reforms to denationalize parts of Pemex and sell them off to the highest bidder. These reforms temporarily reinflated state revenues that had begun to falter after the 2003 peak and drove Peña Nieto’s popularity to a 6 percent lead over Lopez Obrador in the election of 2012.

In 2018, the two meet again in a grudge match with Obrador and his National Regeneration Movement (MORENA) now the favorite. Peña Nieto has become deeply unpopular for a series of conflict of interest scandals, the discredited investigation into the mass murder of 43 student protesters, a collapsing economy, a tepid response to major earthquakes, and general mistrust of police and other authorities’ abilities to keep people safe or provide even the most basic services. When the government stopped regulating retail oil prices in May, 2017, pump prices spiked 20 percent over the course of a weekend. Looting and riots followed.

Peña Nieto is betting the next election on scoring some big gains in the energy sector in 2018 and redeeming his bet to de-nationalize and de-regulate. But in 2013, a month before the Mexican Congress passed the constitutional changes that paved the way for the landmark opening of México’s reserves to foreign ownership, Lopez Obrador sent letters to chief executives at 10 international oil companies, ExxonMobil and Chevron among them, warning them against signing new contracts in México. If the recent failed auctions are any indication, oil company executives can read presidential polls as well as anyone. Why buy a former state asset that could be re-nationalized a few months later?

Ultimately, the differences are a matter of degree, rather than direction. Peña Neto’s projected reforms would increase net output by soliciting investment in unconventional sources. Obrador would do the same, but without foreign ownership. Both candidates act as if they are ignorant of the Paris Agreement and the legal commitment México made to decarbonize its economy by 2050.

It is as if two thieves are standing outside a jewelry store. One says the best way to rob it is to break the window and stuff as much in your bag as you can before the police arrive. The other says the best way is to cut the alarm, sneak in the back and be quiet, then take your time filling your bag. Either way, the robbery is still going down. And both thieves are wrong if they think they will get away with it.

Most Mexicans, like most USAnians, are unconcerned about climate change, and assume it affects someone else. Mexican mass media is as silent on the subject as CNN, Fox or MSNBC. That is because Mexican mass media is CNN, Fox and MSNBC.

Rather than do what must be done, close the wells and pipelines altogether and take advantage of its extraordinary solar resource, México has chosen to buck international scorn, keep pumping like there is no tomorrow and wait out the apocalypse. It won’t be pretty.