Mexico, one of the largest oil exporters to the United States, could become a net oil importer in the next decade if it fails to make sufficient upstream oil field investments utilizing new and advanced technologies, according to a new Baker Institute-Oxford University study being released today in Mexico City. The study event “The Future of Oil in Mexico/El futuro del sector petrolero en México” will stream live from 10am-4pm with keynotes by Dr. Juan Jose Suarez Coppel, Director General of Pemex, oil commentator Edward Morse and oil shocks economic specialist James Hamilton.

The Baker Institute study finds that the stakes of the current political stalemate over oil are quite high. Were Pemex, Mexico’s national oil company, able to fully develop its oil in line with international standards and technology, Mexican citizens could earn $1,055 per capita per year by 2020, versus $546 if current trends continue.

Mexican petroleum production has been falling — more than 25 percent since its peak in 2004 of 3.9 million barrels per day. Mexico produced 2.98 million barrels per day in 2010. The giant Cantarell field, in particular, has seen a significant drop in production. Meanwhile, domestic demand for oil has grown from 500,000 barrels per day in 1971 to roughly 2.15 million barrels per day in 2010.

It is possible that more clarity about alternative distributional strategies would engage the Mexican population more proactively with the reform of the oil sector, even before a crisis is apparent. To this end, greater analysis and transparency is needed on two fundamental issues: the current distribution of Mexico’s oil rent and how might it be better allocated. The Baker Institute-Oxford study suggests that a more equitable distribution of oil revenues might create more grassroots political backing for energy reforms. If revenue shares were distributed directly to citizens as a resource dividend in cash rather than indirectly via government services, one result would be to completely eliminate the extreme poverty that still afflicted 16.5% of the Mexican population in 2008. The study shows that the net effect of the fiscal system in 2006 was to transfer entitlements to the wealthiest 10% of the population, rather than those who were more in need of assistance. A different system that distributed the benefits of oil-financed public services in a manner that reached a greater segment of population might leave the country’s voters less tolerant of the role that vested interests play in preventing more productive strategies. Moreover, the possible costs of a continued political stalemate on oil reform for average Mexican citizens could be quite large, an argument again that the average man on the street in Mexico should be less indifferent to the inefficiency and lack of competitiveness in the sector.

The national oil company Pemex has taken steps to slow the declining production by increasing investment in two newer fields. If Pemex is able to maintain production levels through new finds and better efficiency, it could remain an exporter for three more decades, but these prospects are costly and uncertain, and accessing these resources is geologically challenging. For instance, despite spending more than $4.9 billion on the Chicontepec field, production is forecast to be only 70,000 b/d in 2011.

The country has three fundamental long-term objectives: to retain ownership and control of subsoil resources (“resource nationalism”); to protect the national economy from external shocks and predation (“energy security”); and to distribute any surpluses generated from this national patrimony to the benefit of the Mexican people as a whole. In order to reach these very broad goals, which may reinforce each other but can also generate conflict, Mexico in the upcoming years faces major tradeoffs and conflicting choices – between long and short-term priorities; between maintenance and new investment; between delivering current services and planning for innovation.

Photo by jcam.