Mexico Joins Oil's Big Leagues

Like a Scene from Dante, the night sky south of Villahermosa is filled with a fiery glow. It comes from great gouts of flame that flare off natural gas from scores of wells dotting the steamy marshes, scrubs and jungles of the aptly named state of Tabasco in southeast Mexico. Every day, 300 million cu. ft. of gas, enough to supply the energy needs of Vermont for a month, are simply burned off, in part, because the U.S. Government refuses to pay the price that Mexico demands. The huge gas supply and the appalling waste are symbolic of the future promise and present uncertainty of Mexico's growing oil and gas discoveries, findings that are propelling the poor but potentially mighty neighbor across the river into the world of petropower and intrigue.

Interest in Mexico's energy wealth reached fever pitch last month, when Pemex, the government monopoly, revealed the latest strike in the Chicontepec field near the Gulf Coast city of Tampico. Pemex Chief Jorge Diaz Serrano estimated that the field would double the country's potential reserves of oil and gas to more than 200 billion bbl.

In the dizzying realm of oil statistics, that rough estimate requires major qualification. Reserves are measured in three ways: proven, probable and potential. Unlike other countries, Mexico further complicates matters by lumping oil and gas together; about two-thirds are oil, one-third gas. The government figures its proven reserves--oil and gas that can be recovered with existing technology at current prices--at 20 billion bbl. This total is expected to be raised soon to about 30 billion bbl., which would make Mexico's known supplies of oil slightly larger than those of Venezuela or Nigeria, though far smaller than Saudi Arabia's 160 billion bbl. The official reckoning of the much less certain probable reserves, which might be retrieved from fields already discovered but not fully explored or developed, is about 37 billion bbl. Potential reserve estimates, like those used for the Chicontepec field, cover all the oil that might be in the field whether or not it is recoverable.

No matter how it is gauged, all this is splendid news for Mexicans, millions of who live in poverty. Pemex hopes to lift production from its present 1.5 million bbl. a day to 2.5 million by 1980. At the same time, it expects to triple its oil exports to 1 million bbl. a day, mainly to the U.S. (whose total imports now are 9.1 million bbl.). As a result, oil earnings are expected to hit $8 billion annually by 1980.

The Mexican finds are significant but hardly a complete solution to future energy shortages. At best, oil from Mexico would put off the projected fuel crunch from the late 1980s to the early 1990s. But together with other potential big fields--in China, Iraq, Canada, South America, Alaska and elsewhere--the new bonanza in Mexico could enable the world to scrape by into the 21st century, by which time energy from alternative sources may be widely available.

Beset by many social and economic problems, Mexico is determined not to follow the example of some oil nouveau riche countries and use up its resources without establishing a solid industrial and agricultural base. Says Diaz Serrano: "It must be considered an absolute error for Mexicans to pin all their hopes for progress on the oil industry." Mexico's President, Jose Lopez Portillo, adds: "According to our plans, toward 1980 we will reach a plateau in oil production that will enable us to export about 1 million bbl. a day. It could be more, but we believe it is prudent to enter the next century maintaining this production level."

Pemex lacks the technology, organization and capital to develop its fields quickly. Yet it remains wary of admit ting multinational companies for fear of Losing its tight grip on production. The need to control the oil flow is rooted in the almost mystical and sometimes xenophobic attachment that Mexicans have for their resources, which they regard as their national patrimony to be exploited by and for Mexicans.

Leftists particularly oppose pumping out oil rapidly to satisfy U.S. needs. On walls all over Mexico City hastily plastered up signs read: DON'T SELL OUR GAS, and MEXICO'S WEALTH FOR MEXICANS. In addition, the country's wealthy upper class wants to avoid the disruptions that would go with sudden oil-based growth. These sentiments are reinforced by the climate of anti-gringo suspicion. Early in this century, U.S. firms controlled more than half of Mexico's oil wells. Finally, by 1938 the cry "El petroleo es nuestro" (the oil is ours) was being raised by a growing number of Mexicans. In a burst of frenzied nationalism, the government expropriated all foreign oil holdings and kicked out the companies. To this day that action remains for Mexicans the most stirring symbol of their independence.

All the old wounds were opened last year when Pemex signed a letter of intent to sell gas to six U.S. distributors at $2.60 per thousand cu. ft. (MCF). Pemex began building a pipeline that was to stretch from Cactus in southeast Mexico to Reynosa just south of the Texas border. As the line neared completion, the U.S. Government refused to allow the companies to buy gas at the agreed price. The Department of Energy argued that the U.S. could not pay Mexico 440 an MCF more than it was paying Canada. Carter Administration officials also feared that Congress would never approve paying the Mexicans $2.60 for gas, while limiting American producers to a ceiling of $1.75, as the President initially had proposed in his energy bill. So Mexico has redirected the pipeline to stop well short of the border and expects to complete the line next year, and to use the gas in the country's own utilities, factories, homes and even city buses. The rest is being flared off.

Meanwhile, Mexico is experiencing the ecstasies and agonies of an oil boom, particularly in Villahermosa, the capital of Tabasco. Once a sleepy little river town, it gained notoriety in the early 1930s when its dictatorial governor sent out his redshirted militia to shoot Catholic priests and their congregations. The town's watchwords were: "No alcohol, no churches and lights out at 9:30." Graham Greene memorialized these events in his novel The Power and the Glory.

Today Villahermosa is a get-rich-quick enclave in a jungle of poverty. The city's population has jumped from 150,000 to 250,000 in four years. Villahermosa has sprouted three first-class hotels, all booked solid. Highly paid oil workers have kicked up the prices of everything from housing to tortillas. Reeking of oil and money, the town is attracting the usual motley con men and drifters, losers and locos. The trucks barreling between the town and the fields rarely stop when they hit a pedestrian. About one pedestrian is killed each night, often a bewildered campesino still unable to grasp the rapid changes. Whores flash their gold-toothed smiles while cruising the wide boulevards, which have been newly rebuilt with pink paving stone. Rifle-toting policemen patrol the downtown banking area because, as one shopkeeper laments, "this is the season of the rateros [thieves], and they know this is a money town now." The better bars echo with the accents of Texas and Oklahoma, since Americans have been quietly allowed in to market equipment and technical advice. Brazilians, Frenchmen and Israelis are also eager to buy Mexico's oil and gas if Pemex does not strike a deal with the U.S.

Despite the present differences, the chances of the U.S. making a deal with Mexico are excellent if both sides use some enlightened diplomacy. The U.S. needs Mexican oil and gas to ease its dependence on the unstable Middle East. Besides, it would be much easier to pay for imports from Mexico than from Araby. Unlike the Persian Gulf states, Mexico is poor and populous. It has 66 million people now and anticipates 132 million by the end of the century-and they will need tremendous quantities of what the U.S. has to sell: farm machines, computers, technology of all kinds.

Clearly the time has come to forget the Alamo, to struggle down memories of the glorious oil nationalization and to try some creative horse trading. President Carter will journey to Mexico in mid-February to trade abrazos and to parley in his struggling Spanish with President Lopez Portillo. Now that Congress has passed the energy bill and U.S. natural gas prices will rise in January, Carter can comfortably sweeten the price for Pemex gas. In order to encourage Mexico's struggling agriculture and industry, and to relieve its population pressures, he would do well to promise higher economic aid, lower trade barriers on imports of Mexican textiles and produce, and a reversal of present moves toward stringent immigration controls. Above all, the U.S. must be willing to deal with its neighbor as an equal. Only then will the fiercely proud Mexicans soften their suspicion of the northern colossus and join in a partnership that will benefit both sides.

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