The Mexican Reforms

Published Aug 28 2008 by Energy Bulletin

In the vast interior of rural México, awareness of an approaching energy and economic tsunami is below even Alert Azul, the first stage of a hurricane watch. For those who read the newspapers or follow television there is no shortage of news about the usual political scuffling between Presidente Felipe Calderón Hinojosa and opposition party leader José Ramiro López Obrador concerning Cantarell oil field’s breathtaking 14% annual decline rate. People just don’t seem to register it as anything other than the usual politics that goes on in México City, a world away from their lives planting corn, grinding steel, or serving tourists with poolside Margaritas.

For those versed in exponential growth, it comes as no surprise that 14% on an up-slope equals a doubling every five years. On the down-slope, where we have less experience, it means a halving every five years. That halving is what the mature oil province just off the coast of the Northern Yucatán is doing to Petróleos Mexicanos (Pemex), México’s national oil company. All those years of mainlining the latest designer recovery technology — the geological seismic scans, side drilling, 900 million cubic feet a day of compressed natural gas injection, 1.2 billion cubic feet a day of compressed nitrogen, water cuts and the rest — lengthened the plateau of Cantarell’s production, but just as oil analyst Matt Simmons predicted in Twilight in the Desert, now comes the breathtaking decline rate, and that is giving Pemex delirium tremens.

To their credit, Pemex has been telegraphing the problem to Calderón since he took over from his patrón in the National Action Party (PAN), Vincente Fox. As Jude Clemente recently summarized in Energy Bulletin, Fox’s PAN party broke the 70-year political stranglehold of the PRI party when he took office in 2000, and with strong backing from México’s business sector, advanced social development goals that made a significant improvement in the lives of most Mexicans. México’s oil wealth played no small role in this achievement, because both Fox and his PAN party successor used Pemex more as a cornerstone of the state revenue department than as a large business with cyclical needs to reinvest.

México took the oil wealth of Cantarell, and whatever it could borrow from international development banks, to create its massive tourist and manufacturing industries (although it is commonly said by Mexican construction workers, who are paid in cash, that drug money laundering played no small part in the rapid development).

Cancun was transformed from a fishing village at the edge of a jungle into a destination for hundreds of daily passenger jets, dumping European kitesurfers and co-ed spring-breakers into its turquoise bay. Factories for car parts and cheap furniture bloomed along the Rio Grande. México lifted itself from poverty.

All those tourist dollars changed something else. Once México was known as one of the most important food producing countries of the world. Today agriculture represents less than 3 percent of México’s earnings from abroad. México imports all of the principal crops that its population eats: beans, corn, rice, wheat and vegetables. This is a dangerous gambit, as was seen a few years ago, when the government briefly let the price of corn tortillas float upwards with the cost of imported corn. People took to the streets, banging pots, and threatened to bring down the government, until it relented and fixed the price of tortillas at 12 pesos (USD$1.10) per kilogram.

In modern México, the periodic famines that the poor Yucatan fisherman, Rudecindo Cantarell, and his parents knew and expected are hard to imagine. Food is so cheap and plentiful that today obesity is a greater concern than hunger. The average mega-supermarket in Cancun stocks an impressive array of exotic foods trucked, flown or shipped from outside México.

All of this would be well and good if it were sustainable, but the fact is that nearly all of this recent abundance depends on the ancient storehouse of energy that was in the forests and seas of Pangea before the Chicxalub meteor struck, and on the unique geological conditions that allowed that fossil sunlight to be preserved until now.

In 2004, Pemex was pleased to announce that its oil wealth would continue for many years to come. Pemex's head of exploration and production, Luis Ramirez, was quoted in the daily newspaper El Universal as saying that Pemex had mapped seven new offshore blocks with large pools of oil and natural gas, likely in the range of 54 billion boe, more even than México’s proven plus probable reserves at that time.

“This will put us on a par with reserves levels of the big players like Iraq, United Arab Emirates, Kuwait or Iran,” Ramirez said. “What's more, we would be in a position to reach production levels like those of Saudi Arabia, which produces 7.5 million barrels per day, or Russia, which produces 7.4 million.”

Pemex took the opportunity of that occasion to complain that the PAN-controlled government took 61 percent of its gross oil revenues in taxes. Outside investment would be needed to drill future wells more than a mile deep and out into the deep Gulf of Mexico.

“To extract this oil México needs to establish a technology alliance with countries that have experience,” Ramirez said.

The election of Calderón Hinojosa, marked by widespread voting fraud and still called illegitimate by López Obrador and the PRD party, was an opportunity for Pemex to step up its campaign for more investment. Pemex told Calderón that he had to give them the means to drill offshore.

But there are two significant obstacles for Pemex to overcome if it is going to tap the country’s deep offshore resource, and these obstacles are not entirely in Calderón’s control. The first is strong national laws against foreign ownership of México’s oil resource, which is only significant because of the unwillingness of major international oil companies to share their deep sea drilling expertise without a property stake. The second is the 61-percent skim — 260 billion pesos per year — which the PAN government would no sooner give up than NAFTA.

Pemex warned Calderón that its estimates of Gulf reservoirs were still unproven. “You don't have anything unless you have a drill bit,” said analyst George Baker at the U.S. oil patch firm, México Energy Intelligence.

“You can't show there's a barrel of oil there unless you drill for it. And Pemex can't do that without associates. The expertise (for deep-water drilling) is not for rent,” Baker said, in September 2004.

Calderón was no more interested than Vincente Fox in reducing financial dependence on Pemex, and with PRD now blocking any move in Congress to loosen the restriction on foreign investment, the crisis has gradually worsened. It was elevated still more by George W. Bush’s private meeting with Calderón in a Yucatán hacienda in early 2007, a move which the PRD interpreted as an indication of US interest in controlling prospective Mexican oil wealth. The meeting was ostensibly about creating a “shared resource” pact between the USA, Canada and México.

On July 27, 2007, Raúl Muñoz Leos, Director General of Pemex, placed a stick of dynamite under the political logjam, and then lit the fuse. Pemex issued a press release that said México had less than seven years before the country would run out of oil. Not seven years until it peaked. Not seven years for Cantarell. Seven years, and Méxican production would run dry.

Suspicions about Pemex’s motives, given México’s history of political corruption, are not unwarranted. Is the ultimatum from Muñoz Leos a calculated ploy to lift the legal restriction on privatizing México’s oil resource just as it is on the verge of major finds? Many Mexicans believe so. Still, the threat could also be quite real, and it has been taken that way by the political parties.

Calderón’s PAN party has proposed “La Reforma Energetica,” a call for a national referendum on the privatization of Pemex. In mid-August, 2008, PAN set up thousands of tables at the market plazas in municipalities, staffed with consultants who made presentations and took questions, and then local people were urged to step forward and “vote” for the reform. At the heart of the Calderón plan is for Pemex get the money it needs by joint exploration projects with major foreign oil companies. The Calderón plan would not reduce the tax burden of Pemex, which is to say, lower the draw on Pemex assets as production goes into steep decline.

While the vote is not legally binding, at the voting tables I saw in rural parts of the Yucatán on August 10th, no-one showed up except the promoters. People read the morning newspaper that told about the referendum, and then used the paper to wrap fish.

López Obrador has formed a coalition with his PRD and two smaller parties — the Partido del Trabajo (PT) and Convergencia — called Frente Amplio Progresista (FAP), or “combined progressive front.” This past week FAP proposed its own alternative to La Reforma Energetica, with 10 legal initiatives that sound vaguely like the Oil Depletion Protocol. A novel addition would be to oversee Pemex's finances by means of an independent “Citizen Council.” Obrador has called for a day of peaceful civil resistance to La Reforma Energetica on August 31.

The central idea of the FAP plan is that the federal government will gradually reduce the percentage of profits it takes from Pemex, allowing the company to use its own money to finance exploration and new production. Remarkably, the third major party in Congress, the PRI, has not rejected the FAP plan, and has left open the possibility that it might join the coalition. Another significant supporter is the union of petroleum workers, which has been gradually squeezed over pay, working conditions and benefits as Pemex tries to keep up with its high taxes despite declining revenues. PRD Senator Carlos Navarrate underscored that the FAP plan would not privatize Pemex, “neither total, nor partially.”

“Pemex can explore, it can drill, it can construct refineries and improve its plants,” said Navarrate.

For now, the impasse remains. The groundswell of public support that Calderón had hoped for did not materialize, at least out in the rural parts of the nation where I spoke with people who were following the issue.

And perhaps the more interesting point is that very few Mexicans are even concerned about it. For now, their concern is that the price of food and rent has been going up dramatically while their wages are constant and unemployment is rising. In rural areas where the average wage for a skilled worker is 200 to 300 pesos per day (USD$19.70 to 29.50) and half that or less for an unskilled worker, seeing prices for groceries similar to those in the USA or Europe is, to say the least, disconcerting.

Summer Reruns

‘tis the season of summer beaches and merriment, but I can’t resist submitting for your reading enjoyment this splendid post by George Washington.

Wednesday, August 20, 2008
WTC 7 Solved: It Was Ivins!

Following is a leaked version of NIST's August 21st announcement as to the cause of the collapse of World Trade Center 7 on 9/11.

The government destroyed the steel from ground zero, because we believed it might not have been allowed as evidence at trial.

However, we did ship one steel beam to someone, who sold it to a junk yard in China for scrap metal, which melted it down to make Olympic trinkets, one of which was shipped back to us yesterday.

After testing that steel using very secret, super-advanced, but Incredibly Accurate new methods, we have determined that residue on the steel matches certain aspects of Ivins' desk in his lab at Fort Detrick (true, it also matches the desks from at least 16 different laboratories throughout the world, but our super-advanced testing has shown that we do not need to talk to anyone at those other labs).

While previously, experts said that no modern steel-frame high-rise had ever collapsed due to fire alone, that the fires in building 7 were not that hot or widespread, that building 7 collapsed at virtually free-fall speed, and that the building must have been brought down by controlled demolition, government scientists now say that isn't true.

Government scientists now know that one disturbed individual (especially if he likes sorority girls), acting alone, can weaken thick core columns, melt (and even partially evaporate) structural steel, and cause molten steel to continue boiling for months afterwards simply by having bad energy (especially if he looks geeky).

Government investigators have created a new timeline showing that between the time Ivins created super-advanced weaponized anthrax all by himself without advanced equipment and the time he returned for a routine meeting at Ft. Detrick later that day, he drove to Manhattan and glowered with evil intent at building 7.

This case is now solved, and we our closing down our investigation.

Anyone who doubts our conclusion is a conspiracy theorist who should go look for anthrax spores on a grassy knoll.

For more from George Washington, why the FBI admits it has no case against Ivins, how the anthrax went from brown sand-like quality to high-tech nanoparticles of polymerized glass over the course of multiple attacks (attacks, it should be mentioned, against those most likely to oppose passage of the Patriot Act) and odd coincidences between the anthrax attacks, the Iraq forgeries and 9-11 (not to mention the JFK assassination), visit George Washington's Blog. I have taken a good deal of pleasure in watching this unfold in the past month, in no small part buoyed by my recent viewing of the TNT 2000 made-for-cable movie, Nuremberg, now available for rental in DVD.

In Nuremberg, Alec Baldwin, as Robert H. Jackson, gives one of the best opening statements by a prosecutor in recorded history. Nothing is overstated or grandiloquent. He merely puts the court itself on trial, with civilization in the balance.

Under the clutch of the most intricate web of espionage and intrigue that any modern state has endured, and persecution and torture of a kind that has not been visited upon the world in man centuries, the elements of the German population which were both decent and courageous were annihilated. Those which were decent but weak were intimidated. Open resistance, which had never been more than feeble and irresolute, disappeared.

***

The real complaining party at your bar is Civilization. In all countries it is still a struggling and imperfect thing. It does not plead that the United States, or any other country, has been blameless of the conditions which made the German people easy victims to the blandishments and intimidations of the Nazi conspirators.

But it points to the dreadful sequence of aggressions and crimes I have recited, it points to the weariness of flesh, the exhaustion of resources and the destruction of all that was beautiful or useful in so much of the world, and to greater potentialities for destruction in the days to come. It is not necessary among the ruins of this ancient and beautiful city with untold members of its civilian habitants still buried in its rubble, to argue the proposition that to start or wage an aggressive war has the moral qualities of the worst of crimes. The refuge of the defendants can be only their hope that international law will lag so far behind the moral sense of mankind that conduct which is crime in the moral sense must be regarded as innocent in law.

Civilization asks whether law is so laggard as to be utterly helpless to deal with crimes of this magnitude by criminals of this order of importance. It does not expect that you can make war impossible. It does expect that your juridical action will put the forces of international law, its precepts, its prohibitions and, most of all, its sanctions, on the side of peace, so that men and women of good will, in all countries, may have "leave to live by no man's leave, underneath the law."

We could have this kind of renewal of idealism again, if we want it now. With the anthrax attacks, Iraq forgeries and 9-11, all of the elements are in place. In Nuremberg in 1945, the defendants were indicted on four counts: conspiracy to wage an aggressive war (Committee for a New American Century, Cheney Energy Task Force, Italian Memo, 9-11, Iraq forgeries, UN Security Council perjured testimony, Valerie Wilson), waging an aggressive (pre-emptive) war, violating the rules of war (Geneva Convention, UN charter), and crimes against humanity (the UN Declaration of Human Rights, for instance, would prohibit extraordinary rendition, black sites, torture of non-combatants and children). I submit that a prima facie case has now been made on all four counts against 20 or more defendants in the present or recent Executive Branch, bolstered by their own admissions and tell-all bestsellers.

All that we lack is a Justice Robert Jackson, and the will to prosecute.

Flying with the Vampires

Alcohol Can Be a Gas recently hit #19 on the Amazon bestsellers list, so we called the author, David Blume, to get his sense of why that is, and what it all means.

TGC: David Blume, your book jumped into the top 20 of Amazon's bestsellers at a time when four of the top ten are books about vampires. Is there something bloodthirsty in this book that most reviewers have overlooked?

DB: Bloodthirsty? Oil companies? No say it isn't so! No, the thirst people are feeling comes from hearing that we have to powerdown and even then most of us will still die. This creates a powerful thirst to get something done while there are still choices. It’s time to stop whining about how we let the oil lobby drive the government into its paralyzed state of inaction. People are not willing to buy guns and hunker down to protect their food and fuel. They want solutions and they want to separate facts from propaganda about the alcohol fuel alternative. Hundreds of them have gone out and bought Alcohol Can Be A Gas are now implementing its solutions and building permaculture based food fuel systems all over the globe.

TGC: Looking over the other bestsellers, we find books featuring comic book superheroes, guy-meets-God, an inside-Hollywood tell-all, a boy raised by dogs, and a citizen diplomat's attempt to build 50 schools in Pakistan and Afghanistan. Why should ACBAG be keeping this kind of company?

DB: People who are willing to think outside of the box and act are the real superheroes. One reader, Roy Eycamp in Australia, bought 100 books to give to his fellow farmers. Another, Mike Shapiro, is running his Chicago E-Cab fleet on ethanol and saving $3600 per year, per car.

TGC: Do you have any idea who is buying your books? It is an American audience or Saudis? Iowa farmers? Truck drivers?

DB: Entrepreneurs are number one. With gas at $4, making alcohol from waste products for $1 a gallon looks like a great business. Truck drivers who have to spend $1500 to fill their tank are learning that you can run diesels on alcohol. Agriculture and energy departments in developing countries around the world are snatching up copies. Librarians cannot keep up with patron requests. Many people are buying the book to start neighborhood driver-owned alcohol stations.

Farmers are looking to get off of the commodities treadmill and into value-added agriculture where they sell fuel and exceptionally profitable crops like tilapia, oyster mushrooms, and high value organic vegetables by using the rich by-products from small-scale distilling plants. The co-products can dwarf the profits from the fuel. When the executive director of the American Corn Growers Association comes to me and says "My members are ready to grow whatever energy crops the country needs and we are telling them all about your book" you can expect a few farmers will pick it up.

Peak oil is already here and there's no currency in the world that's as secure as a physical tank of fuel. If you got a lot of fuel, you got a lot of friends. Of course, there's all the wannabe Vulture Capital guys choking up my phone lines wanting to figure out how they can make their next zillion off decentralized alcohol production. But you know, the average person in the US buying this book is just sick and tired of being jerked around by MegaOilron, disgusted with the lack of backbone by politicians concerning renewable fuel, and they just aren't going to wait for someone to come to their rescue. People really get it that we are not going to fix rising prices, climate change, and peak everything with more coal/oil-shale/tar-sand/nuclear.

The idea that while filling your tank with your own self produced $1-per-gallon alcohol and getting 61 cents per gallon back from the IRS, you are screwing both the oil companies and the government is about as much fun as you can have standing up.

And, let's face it — there is a certain amount of absolute satisfaction knowing that you are part of the solution and not part of the problem. People call me to say that even if alcohol would cost them $5/gallon to make they would do it to not be dependent on the filthy and war-tainted alternative. It is simply more moral to be moonshining.

TGC: Given your success, do you think Detroit or MegaOilron will now look for ways to squash you?

DB: I still think everyone is underestimating this revolution. We have heard repeatedly that small-scale alcohol can't ever amount to anything. If you think that, don't think too hard about the currently operating decentralized biomass-conversion-to-liquid-fuel-from-cellulose/carbohydrates system, collected a squirt at a time from mobile bioconversion units, bulked shipped and packaged for delivery to your local market at a price lower than gasoline. It’s called milk.

Second, when it comes to Detroit there are car-dealers now who have read my book have been buying my conversion kits, slapping them on new pickups and SUV's and covering them with a full warranty at that dealership, because they cannot move these behemoths off the lot any other way. When word of this percolated up to the top brass at Ford, I had a long talk with people from the corporate office at Dearborn about modifying their flotilla of diesel pickup trucks to high-efficiency alcohol vehicles before they become scrap metal. We are talking about designing new engines and conversion kits not because they want to but because they are staring into the abyss.

We are talking about getting back to their roots since the Ford Model A and T were the first flex-fuel vehicles designed to run on both alcohol and gasoline. But what stunned them into silence was when I told them a plant is opening in China to make high-compression, high-mileage, dedicated alcohol engines and that GM was already planning to bring out a dedicated alcohol sports car engine in Sweden. They could just see the rest of the world eating their lunch. The rest of the world is already moving into the post-petroleum era.

As I point out in Alcohol Can Be A Gas, the world uses in rough terms 500 billion gallons of fuel a year. By lucky mathematical chance it turns out that it costs roughly $1 per gallon of annual capacity to build an alcohol plant, more or less regardless of scale. So replacing all the fuel in the world would take about $500 billion. Seems like a big figure? No way to mobilize that capital to make a change away from oil? Well, think again, we already have spent more than this in Iraq just trying to secure a way to get at our oil under their sand. If we had instead gone around the world lending that money to every nation on the planet, to produce their own fuel and varied high value food outputs from the byproducts, we would have already ended petroluem fuel use planet-wide and have started reversing global warming. Instead of hating us for killing and maiming Iraqis and young Americans, every nation in the planet would be rooting for the US. And just maybe the dollar would be the strongest currency in the world instead of going into the tank.

You know when you used to publish a book in North America you always had to put the price of the book in both US and Canadian dollars on the label. When I published Alcohol Can Be A Gas last November I didn't bother, saying that in 6 months there wouldn't be a difference in price. Well I was right. If we don't go to domestically produced alcohol fuel, by the next time I do my printing I might have to start putting both prices on the back but the US price will be higher than the Canadian price since our trade debt to pay for their awful tar sands goo will make our currency sort of worthless to them. Think about that eh?

TGC: What are you going to do with all your money?

First of all I took no industry or special interest money in writing this book. I was totally funded by loans from individuals and two liberal foundations to the tune of $300,000+. So for a while you can expect me to be paying back some courageous people who backed this project. After that, what I want to do with other people's money might be starting a revolving loan fund to finance driver-owned alcohol stations that harvest massive tax credits, open a distillery-manufacturing business, and license my “Patent to Destroy Monsanto” (my combination herbicide and fertilizer made from alcohol fuel byproducts). In other words, there's a lot of work to do. But, above all, I am looking to build a model permaculture alcohol plant training center where farmers, agricultural teachers and entrepreneurs can come from around the world to learn, hands on, the decentralized production model I illustrate in the book, so they can more rapidly propagate independent plants around the world.

TGC: What’s next?

DB: The book is now a bestseller going out to over 60 countries and I am being scheduled worldwide to trail behind the distribution and speak to people. After I went on Coast to Coast with six million listeners, and told them they could right now, with their present car, put 30-50% of E-85 in their vehicles without modification, the price of a barrel of oil dropped $10. Okay, maybe I'm reaching a bit there. If my message eventually penetrates the infosphere and people just start using 30% alcohol, because it is cheaper than gasoline, blended right at the pump by the driver, we no longer would have to import any foreign oil. Just how can we justify invading and occupying countries if we don't need their oil anymore? So that is what I plan to do — to go on building permaculture-based food fuel systems all over the world.

David Blume can be reached at the International Institute for Ecological Agriculture 831-471-9164. He will be providing a Financial Permaculture workshop in Hohenwald, Tennessee, as part of the Local Economic Development and Green Education Initiative there.