Pubdate: Tue, 13 Feb 2001
Source: New York Times (NY)
Copyright: 2001 The New York Times Company
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Author: Tim Weiner

BUSH IS DUE TO VISIT MEXICO IN SEARCH OF OIL AND POWER

MEXICO CITY, Feb. 12  President Bush comes to Mexico on Friday, and at the 
top of his agenda, alongside trade, immigration and drugs, is his vision of 
an across-the-border bargain to allow billions of dollars of energy to flow 
to the United States.

Such a deal, part of his larger plan to expand trade between the two 
countries, could help stave off debacles like the California brownout and 
liberate the United States from its addiction to Persian Gulf oil, Mr. Bush 
says.

Only three obstacles stand in its way: the laws of physics, the laws of 
supply and demand, and the laws of Mexico. There may be a fourth: It would 
take many billions of dollars in American investment in Mexico to make it 
happen.

Mexico imports huge quantities of natural gas and gasoline from the United 
States, not the other way around. Its power grid cannot handle a torrent of 
electricity flowing north. Its Constitution all but prohibits foreign 
control of energy production. And Mexico will require an investment of $200 
billion or more simply to meet its own energy needs. It does not have the 
money to pay for it itself.

People from the oil business, like President Bush and Vice President Dick 
Cheney, have the habit of thinking big. So does President Vicente Fox, who 
once ran Coca-Cola's Mexico operations. And an energy policy that would 
reach from the Yukon to the Yucatan peninsula, weaving together the United 
States, Mexico and Canada, is a big dream indeed. Mr. Bush and Mr. Cheney 
have talked it up, though not in any great detail, from the day they were 
nominated.

But "it's going to be very difficult for them to come up with a joint 
policy with Mexico that delivers the goods -- namely energy," said Sondra 
Scott, Latin America director for Cambridge Energy Research Associates, a 
consulting firm.

Mr. Bush has not been much more precise about his plans than he was in the 
first presidential candidates' debate in October, when he mentioned the 
need for "a hemispheric energy policy where Canada and Mexico and the 
United States come together."

"I brought this up recently with Vicente Fox, who's the newly elected 
president," he said. "He's a man I know from Mexico. And I talked about how 
best to be able to expedite the exploration of natural gas in Mexico and 
transport it up to the United States, so we become less dependent on 
foreign sources of crude oil."

"Natural gas is hemispheric," he has said. "I like to call it hemispheric 
in nature because it is a product that we can find in our neighborhoods."

When the electric power squeeze hit California last month, he said, "The 
quickest way to have impact on the energy situation is for us to work with 
Mexico, and a certain extent Canada, to build a policy for the hemisphere." 
Last week, he said, "We need more product, and it doesn't matter where the 
product comes from."

Mexico has plenty of natural gas and oil in the ground but lacks the 
technology and money to exploit them fully.

But in Mexico, which nationalized the oil industry in the 1930's, state 
control of energy has been a point of pride for past presidents and 
politicians. Mr. Fox says he welcomes foreign investment, but first he must 
persuade Mexico's Congress to rewrite the laws to allow a mix of public 
ownership and private development in energy production. Then the United 
States and other nations must pour money into Mexico, scouring the land for 
trillions of cubic feet of natural gas and millions of barrels of oil.

And that can be risky, as Mr. Bush knows: the oil exploration company he 
once ran in Texas lost a small fortune, raising $4.67 million from 
investors but returning only $1.55 million. "Bush can come to Mexico and 
put a lot of money on the table," said George Baker, director of Mexico 
Energy Intelligence, a Houston company. "Or he can encourage Mexico to let 
private companies in. This will require legal changes and a new way of 
thinking." Without them, he said, there is little chance for the United 
States to buy much power from Mexico.

Mexico's state-run oil monopoly, Pemex, is the world's fifth-largest oil 
company. It produces all of Mexico's oil and extracts all its natural gas.

But it has spent about $5 billion in the last five years buying American 
gasoline. And Mexico desperately needs more natural gas from the United 
States; its imports are likely to rise to $17 billion a year in this 
decade, its energy ministry projects.

Pemex will have to invest tens of billions simply to keep up with domestic 
demand for gasoline and natural gas. Much of that money must come from 
abroad. But foreign investors are wary of sinking money into a 
state-controlled enterprise. And though Mr. Fox says he wants to open up 
Mexico's petrochemical industry to private companies, he has not spelled 
out how.

Electricity in Mexico is a tangle. Under the Constitution, the government 
controls almost all the power plants, the transmission wires and the 
market. Mexico's grid cannot plug into the United States, except for three 
connections on the borders of California and Texas. Last month, Mexico 
began sending about 50 megawatts a day to California, a one half of one 
percent of the state's needs. "Neither the transmission grid nor the 
regulations exist today for more power to flow north," Ms. Scott said.

Juan Camilo Mourino, president of the energy committee in the lower house 
of Mexico's Congress, said that in the coming decade, Mexico "will have to 
double the amount of electricity we generate," and "at least double natural 
gas production" to meet its own needs.

And Ms. Scott, the consultant, said the country will require "$50 billion 
or 60 billion in capital expenditures" before it can produce enough natural 
gas to export it -- part of a larger need to invest $200 billion to $250 
billion in the energy sector by 2015.

"Pemex will not be spending this money," she said. "They can't." Without 
the money, she suggested, the policy Mr. Bush proposes may be a pipe dream.
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