George Baker
Consultant
Berkeley, Calif.
Mexico's National Science Council (NSC) has made a strong appeal to strengthen Mexico's efforts in science.
The energy sector is given special treatment, and NSC urges the federal administration to take a sharper look at the medium and long term implications of its modernization plans. The council urges greater efforts at energy conservation and encourages Mexico's State Petroleum Institute (IMP) to develop the horizontal drilling techniques that Pemex currently obtains only from foreign contractors.
Aside from the value of NSC's well-intended advice to the IMP, the council's vision of the energy challenge of Mexico-and of the specific role the petroleum sector within that challenge-is narrowly conceived.
WEAKNESSES
There are four points where the council's orientation, findings, and recommendations are weak.
In the first place, regarding Mexico's energy challenge, the report is framed as if Mexico's only responsibility were to provide units of physical energy to present and future consumers within the republic.
Surely this Mexico-as-an-energy-island is a mistaken orientation. Regarding petroleum production, not only Mexico but a dozen other countries, including the U.S., Japan, and Spain, rely on Mexico for part of their energy needs.
Without question, these countries are looking to Mexico as a continued long term supplier of petroleum. From their point of view, energy planning in Mexico must include them and their present and future needs, not only those of consumers within Mexico.
What is troubling, therefore, in the Council's discussion of alternative energy such as solar, nuclear, and (clean-burning) coal is that, for the most part, the energy from these technologies cannot be exported to the countries who currently depend on Mexico for part of their energy supplies.
If I were a Pemex crude oil customer, I would ask the council to wake up. Energy planning, as former President Jose Lopez Portillo used to insist, is not the private matter of individual countries undertaking their own calculations for their isolated needs. Energy planning at heart is a collaborative regional and international undertaking.
In the second place, the council seems unaware of the administration's environmental goals for the Valley of Mexico and the U.S.-Mexican border, goals in which natural gas plays a central role. On Feb. 11, for example, the administration announced a new program for Mexico City to convert part of the public transit and freight fleet to LPG and compressed natural gas. On the northern border the U.S. and Mexican governments are near completion of a Border Environmental Treaty, one effect of which will be to require the conversion of electric power stations near El Paso-Cuidad Juarez and San Diego-Tijuana from high sulfur fuel oil to natural gas.
Third, in the matter of technology transfer in the areas of exploration and production, the council is naive. In encouraging IMP to develop horizontal drilling, the council is asking the institute to reinvent existing technologies and techniques using Mexican inputs.
The Council is right to imply that Pemex is not obtaining significant levels of technology transfer from the use of oil field service contractors but seems to be reasoning that if you can't buy the technology, then you should make it yourself.
Finally, NSC chooses not to accept the challenge of asking the question: To what extent can Mexico's energy needs-aside from those of other countries-be met under the current regulatory framework?
Just because this question is politically sensitive doesn't mean that the scientific enterprise in Mexico should hide in the closet on this issue. The question admits of two angles of discussion.
MEXICO'S TECHNOLOGY NEEDS
Let's take horizontal drilling as a generic example of an upstream need in Mexico. We must realize that the technology is not just a matter of gradually turning the direction of the drill bit from a vertical to a horizontal direction. The larger issues are those of field development and maintenance, which include considerations as diverse as well spacing, gas and water reinjection, and drilling muds.
The knowledge and experience that currently exist outside Mexico were developed by companies operating in a competitive environment as they experimented with the horizontal drilling approach. They were working on an incentive basis, not for a fee. If they produced oil in commercial volumes worth more than the cost of exploration and production, they survived-and kept their jobs. If not, they didn't.
Geologist Joseph P. Riva Jr., of the U.S. Congressional Research Service in Washington, D.C., tells an amusing story on this point.
Some years ago, a number of U.S. congressmen asked the U.S. Geological Survey, "If we know where the oil is in Alaska, why don't we just drill for it ourselves, as a government enterprise, and leave out the private companies?"
Evidently, USGS did not have a convincing reply, so after $150 million was spent for a government operated exploration program in the National Petroleum Reserve-Alaska without commercial oil production, congressmen were led to the conclusion that a prospective region came into production in large part thanks to the competition among companies looking at the same data.
At bottom the importance of the competitive factor in the development of science is itself a scientific question, not a political one. The council, then, is silent on the question of whether the present noncompetitive regulatory framework in Mexico is an obstacle to the development of science and technology (OGJ, Mar. 9, p. 34).
SELF-SUFFICIENCY THREATENED
Mexico's NSC is evidently aware of the concern that has been voiced in Pemex and elsewhere that Pemex's medium term outlook for oil production is troubling (OGJ, Feb. 3, p. 16). At least since 1988 Pemex internal studies have said that without corrective action Pemex could become a net oil importer by 1997 or so.
What's the nature of that corrective action? The council's business-as-usual approach to this question is not acceptable. In terms of Riva's story, Pemex is the USGS looking for oil in Alaska-by itself. Unlike the USGS's experience, Pemex has been successful-using conventional techniques. Other techniques developed in competitive environments are available to Mexico-but only on an incentive basis. The U.S., Canadian, and European producing companies that learned their skills in a competitive, incentive-oriented world are unable to bring their art to Mexico for a mere contractor's fee-no mater how large. The art and the reward mechanism of the artist cannot be separated. Such corporate artists are able to apply their skills only under the condition in which reward is commensurate with success. Period. Skeptics should ask representatives from these companies if this characterization is true or not.
So, if the "corrective action" consists in bringing new upstream technologies and artist's secrets to Mexico, then asking the IMP to produce them is asking for acts of magic. The correct answer lies in finding a politically satisfactory method to bring international producing companies with the needed skills into association agreements with Pemex on an incentive basis. There are dozens of forms and variations in which such agreements can be crafted; surely one of these can fit Mexico's needs for oil, natural gas, sovereignty, and export earnings.
Another way of expressing this basic relationship is to say that the price to Mexico of the kind of upstream efficiencies that were developed in a competitive, incentive-oriented environment will have to be paid for in competitive, incentive-oriented terms. Otherwise, such efficiencies are simply not available to Mexico. One might wish that the world were different on this score, but it is not.
This conclusion rests on an argument about the nature of the scientific enterprise involving petroleum E&P and about the economic mechanism by which the results of that enterprise are spread internationally. The conclusion cannot be properly avoided by saying that it contravenes the current regulatory framework in petroleum matters.
A PROPOSAL FOR PEMEX
Now, for a suggestion about how petroleum science might be advanced in Mexico. Virtually every day Pemex receives letters of inquiry from around the world from companies and/or countries asking if such-and-such an investment option were viable. In most cases these requests lie unanswered for the simple reason that the correct reply would have to be, "No, such an investment is not permitted under the current regulatory framework."
My idea, which I've discussed with a colleague in Pemex, is that such inquiries should be responded to in the following language:
"Gentlemen: Thank you for your inquiry. We appreciate the importance that you give to Mexico as an integral part of the world energy supply system. At present, we ask you to consider supporting Mexico's efforts to continue to play the role of a responsible source of energy supplies by assisting us with the development of our scientific and human resources in the petroleum field. Because the investment option that you wish to fund and about which you spoke in your letter is currently not on the list of approved activities for private capital, we cannot offer you that vehicle to express your commitment to Mexico.
"What we can offer you today is the option of playing an important role in our academic research projects at the national and polytechnical universities and in the professional development of our petroleum engineers, geologists, and geophysicists. We ask you to consider cofunding some of these research projects (see attached list of projects in progress or awaiting funding). We also ask you to underwrite a scholarship fund so that a Mexican petroleum engineer might come to your country to gain a masters degree in his or her chosen speciality. In the U.S., Canada, and several other countries we have continuing collaborative research programs with several leading universities.
"Finally, we ask you to participate with us in an exchange program in which we will send you one of our engineers or geologists for a year's internship and you will send us one of yours. During this time these individuals will be assigned to agreed-upon projects, toward the end of enriching the vision, professional outlooks and personal ties of the individuals and institutions involved. Sincerely yours, (Pemex Pres.) Francisco Rojas."
With new funding and an international, collaborative outlook in science and engineering, the likelihood of Mexico's becoming a net oil importer in the foreseeable future will surely decrease.
Copyright 1992 Oil & Gas Journal. All Rights Reserved.
