Catching a Sneaky Fox in A Pipeline Scandal: Oil and the Power of Arizona Big Shots

1321 words, Marcel Miranda,

 http://narcosphere.narconews.com/story/2005/3/29/11756/1982

“…The anticipated permitting ‘‘sends a very strong message south of the border,’’ said Ian Calkins a representative of Arizona Clean Fuels which hopes to make big bucks selling the refinery idea to a major oil company or investor group. (1)

On March 21, the EPA approved state regulators’ draft permit for a proposed $2.5 billion oil refinery along Interstate 8 about 40 miles east of Yuma, Arizona, a development which the project’s sponsor says should help it both secure financing and a source of crude oil. The facility will produce 50,000 barrels per day of motor fuels, including approximately 85,000 barrels per day of gasoline, 35,000 barrels per day of diesel fuel and 30,000 barrels per day of jet fuel. The jet fuel will come in handy for an eventual war against Mexico and the pipeline may end up being the pretext. Arizona has several important air bases, Border Patrol facilities and the Fort Huachuca torture-training center (Military Intelligence).

Dear President-To-Be Andrés Manuel López Obrador, PRD Mayor of Mexico City,

I have some advice and a request.

Mr. Vincente Fox - the corporate “Precedent” of the not-so-sovereign state of Mexico - wants to discredit you to pave the way for a more US-friendly political party in Mexico. He will stop at nothing and so you should not wait, but instead go on the offensive. Every Mexican president has stolen a lot of money before leaving office and Fox will be no exception. Though he has already made billions in future kickbacks from his privatization schemes, I believe that a much bigger one is about to transpire: the Guaymas to Yuma oil pipeline planned for the Arizona refinery.

Exporting more oil to the US is a great mistake economically speaking. There is plenty of demand worldwide and no shortage of willing long-term contract buyers. The US has a problem (well more than one) with oil refining - it has not built a new refinery in 30 years, many small ones have closed and some of the newest ones seem to be blowing up. Thus the US wants to build a new refinery in Arizona. Except that there isn’t any oil in Arizona and no useful supplies within 300 miles.

A slight note aside: we should mention that Arizona is the millionaire retirement and second home Fat-Cat capital of the world – and they like to shoot or humiliate Mexican nationals (and Mexican Americans too!) who cross the border to fill the low paying jobs that US businesses offer them (Wal-mart is a big employer of undocumented workers and a threat to Mexican retail stores too!) For some reason, Arizona is one of the most powerful states in the US with 3 or four Supreme Court justices ( if you count the ones to be nominated soon), War-Boy John McCain who could be the next US president, Congressman Jim Kolbe, and the development empires of the Diamonds, Robsons and Babbits. It’s a wheeler-dealer sate that gets its way and herein lays Mr. Fox’s ticket to a hundred million dollars worth of kickbacks, favorable business deals and a platinum membership card to the US Republican elite. Oh, I forgot the oil pipeline may be built or owned by the Carlyle Group (Bush-Cheney-Powell) (2)

“…. there is debate within Mexican political circles over foreign investment in the nation’s energy resources, ‘‘I believe we won’t be swept up in that process,’’ Calkins said. (1)

Mexican President Vicente Fox wants to give the state oil monopoly, Petróleos Mexicanos, more independence on its investments and to let Pemex ally itself with private companies to exploit reserves in deep waters of the Gulf of Mexico. And he wants to help his friends in Arizona and the White House build their 3 billion dollar oil refinery in the desert.

Enigmas abound in this deal. Why build a refinery far from oil? And why would Mexico send cheap oil just across its border to be refined into gasoline when Mexico imports almost a quarter of its gasoline costing the country more than one billion dollars a year. (3) Mexico could build a refinery in Hermosillo or Guaymas and sell gasoline to the US at a high profit. This would create many jobs and save Mexico precious foreign currency reserves (dollars). And a new Mexican refinery could supply petrochemicals that the country must also import (4).

The Arizona oil pipeline is a threat to Mexico’s national security – it’s a one-way deal that will be enforced forever. Right now Mexico is dependent on the US for a significant amount of its gasoline imports. The new pipeline will increase this dependence. Worse yet, once it is built the Mexican government could never dare stop sending oil north as this would shut down the refinery and cause severe problems for the US. Well actually it would cause severe problems for Mexico as the US would never tolerate a disruption in supplies to its new refinery.

Mexico is already tied into long term contracts to supply oil to refineries in Texas. (3) A source of gasoline (up to 45,000 b/d) for Mexico is the 255,700 b/d Deer Park (Texas) refinery, a $1 billion per year joint venture between PEMEX and Shell Oil Company. PEMEX began investing in the refinery in 1993. In 2001, the modernization of the Deer Park facility raised output by about 60,000 b/d and enabled it to process 220,000 b/d of heavy Mayan crude. Note that for its large investment which raised output by 60,000 b/d, Mexico only received 45,000 b/d. The gringos always come out ahead and even got the Mexicans to supply the oil and the investment funds.

PEMEX has also signed a long-term deal with Clark USA (March 1998) to supply the Port Arthur, Texas refinery. Completion of a coking unit will enable the facility to process 200,000 b/d of Mayan crude.

This is my advice to you Senor Alcalde de Ciudad Mexico:
Make a big issue of the FOX (PAN) chumminess with Bush and US/Arizona oil interests. Do some economic studies of how many jobs and how much income could be created by building a Mexican refinery instead of helping the US create jobs and income. Make Fox explain his reasoning. Environmental laws do not really exist anymore in the US – at least not if they stand in the way of what Arizona, Bush and the Carlye Group want. Only you and the Mexican people can stop this tragic project that will hurt Mexico and make it more subservient to the US.

My request of you is that you assume that your victory in the Mexican Presidential race is not nearly as important
as restoring hope for the sovereignty of Mexico and faith in politics. A brave and truthful campaign by you and the PRD could go a long way toward empowering the poor in Latin America and to solidify a new era of solidarity among the well-meaning people of the whole hemisphere. You should embrace Hugo Chavez, Fidel Castro, and the indigenous rebels in Bolivia. Make it clear that your administration and the future of Mexico lays not in the easy rhetoric of Lula, Gutierrez or Kirchner, but in action. You should set forth how you will restructure the economy of Mexico, a new foreign policy and mechanisms to bring the people and communities into a participatory democracy as Chavez is attempting in Venezuela. Withdraw from NAFTA, Join ALBA, Mercosur, Petro Sur and OPEC. Significantly redistribute land and wealth in Mexico by increasing taxes on foreigners and then thank them for their nice investments that you can now put to work for the poor. Stand up to US bullying and unite Mexico’s great power and resources with the dramatic changes underway in Latin America and then the US will have to accept these changes.

Buena Suerte, Marcel Miranda
Ps. Get some Latino rock bands lined up for your campaign and you can’t lose!

NOTES:
(1)  http://www.dailystar.com/dailystar/business/66872.php

(2)  http://www.platts.com/HOME/News/5485921.xml?p=HOME/News&S=n

(3)  http://www.geni.org/globalenergy/library/national_energy_grid/mexico/LatinAmericanPowerGuide.shtml
PEMEX is forecasting 2-3% annual growth in demand for refined products through 2010 and it needs to increase refinery capacity 14% over that period to keep pace. Despite PEMEX's efforts to boost refinery capacity, Mexico imports 380,000 b/d of refined products. Imports of refined products have cost Mexico $7.6 billion over the past five years, and will cost another $7 billion over the next five years. An historical summary of Mexican exports and imports of selected petroleum products is shown in Table 5.Limited refinery capacity means Mexico must import nearly one-quarter of its gasoline.Due to projections of strong economic growth in Mexico, domestic gasoline demand is forecast to reach 808,000 b/d by 2010, while demand for diesel fuel is predicted to climb to 460,000 b/d. PEMEX is forecasting 2-3% annual growth in demand for refined products through 2010 and it needs to increase refinery capacity 14% over that period to keep pace. Despite PEMEX's efforts to boost refinery capacity, Mexico imports 380,000 b/d of refined products. Imports of refined products have cost Mexico $7.6 billion over the past five years, and will cost another $7 billion over the next five years. An historical summary of Mexican exports and imports of selected petroleum products is shown in Table 5. Limited refinery capacity means Mexico must import nearly one-quarter of its gasoline.Due to projections of strong economic growth in Mexico, domestic gasoline demand is forecast to reach 808,000 b/d by 2010, while demand for diesel fuel is predicted to climb to 460,000 b/d.

(4)  http://www.energybulletin.net/2882.html
Mexico's energy problem - Oil, politics a difficult mix; Atlanta Journal Constitution, October 29, 2004.
Mary Lou Pickel

ADDENDUM:
(1) (1) Arizona refinery passes hurdle : By Paul Davenport; THE ASSOCIATED PRESS
The U.S. Environmental Protection Agency has approved state regulators' draft permit for a proposed $2.5 billion oil refinery in Arizona, a development that the project's sponsor says should help it both secure financing and a source of crude oil. The Arizona Clean Fuels project would be the first refinery ever built in Arizona and the first in the United States in nearly three decades. The Arizona Department of Environmental Quality, which announced the EPA action Tuesday, said it anticipates issuing the final permit within the next two weeks. "As we expected, EPA had no real issues with the permit we drafted," DEQ Director Steve Owens said. "This is the toughest air-quality permit ever proposed for a refinery."

Ian Calkins, a spokesman for Scottsdale-based Arizona Clean Fuels, said negotiations continue with Mexican authorities for both a supply of crude oil and construction of a terminal and pipeline to carry crude to the refinery from a Mexican port on the Gulf of California. The air-quality regulatory actions will help both in those negotiations and in dealings with potential investors for $500 million for the design phase of the project, Calkins said. Though there is debate within Mexican political circles over foreign investment in the nation's energy resources, "I believe we won't be swept up in that process," Calkins said. Mexican President Vicente Fox wants to give the state oil monopoly, Pemex, more independence on its investments and to let Pemex ally itself with private companies to exploit reserves in deep waters of the Gulf of Mexico. The anticipated permitting "sends a very strong message south of the border," Calkins said. Besides the final state air-quality permit, Arizona Clean Fuels also needs to complete an environmental impact statement with the U.S. Bureau of Land Management for both the refinery and the pipeline, Calkins said. The refinery would be built along Interstate 8 about 40 miles east of Tacna, in eastern Yuma County. The facility could produce about 150,000 barrels per day of fuels: 85,000 barrels per day of gasoline, 35,000 barrels per day of diesel fuel and 30,000 barrels per day of jet fuel.

(2)  http://www.platts.com/HOME/News/5485921.xml?p=HOME/News&S=n
The Bush-Cheney-Powell Carlyle group is involved in the pipeline.

“The payback could be significant, says McGinnis, an Exxon and Imperial Oil refining veteran who in recent years ran Jack Stanley's troubled Orion Refinery in Louisiana and then El Paso's problem-plagued Aruba plant, now owned by Valero Energy.

"At almost $400-mil a year" of cash earnings, he says, "that's a seven-year payout" on the overall $2.86-bil that would be required, including $220-mil of working capital, $190-mil of startup costs and $280-mil of construction
interest. On top of that, another $500-mil would be needed for the separate pipeline and terminal assets in Mexico, slated to be owned and financed either by state Pemex or WesPac Pipelines, an affiliate of Carlyle/Riverstone's
Buckeye Partners northeast products pipeline network. ACFY is in talks with Pemex to bring Maya across Mexico by pipe from the Sound of Campeche, up the West Coast by tanker to Puerto Libertad at the mouth of the Gulf of California and then via a new 300-mile, unheated pipeline to Yuma. An alternate route would land the crude at Rosarito on the Baja Peninsula for a shorter but more mountainous pipeline link. That might also accommodate new volumes of Canadian heavy crude slated to be moving to British Columbia ports, McGinnis notes.
The new ACFY plant would be by far the cleanest refinery in the world at half the air emissions of the next best US plant. There would be no discharge of water, taken from an existing irrigation canal, with less use than the prior cotton farming there. The plant would be configured around a 145,000 b/d crude unit, 76,000 b/d vacuum unit and a 41,000 b/d hydrocracker, with no cat cracker. Output would be 85,000 b/d of gasoline, 30,000 b/d of jet fuel and 35,000 b/d of diesel, at a mere 5 parts per million of sulfur. To clean and upgrade those fuels, the plant would generate a hefty 75,000 Mcf/d of hydrogen to remove sulfur, crack the heavy crude and isomerize benzene. With no cat-cracker for olefins, purchased benzene would be used for indirect alkylation, McGinnis explains. A 43,000 b/d flexi-coker would turn bottoms into boiler fuel, possibly for eventual gasification on site to generate
power. (This story was originally published in Platts Global Alert:  http://www.globalalert.platts.com)

(3) ( http://www.geni.org/globalenergy/library/national_energy_grid/mexico/LatinAmericanPowerGuide.shtml)
Crude Oil Production and Consumption
Mexico is the world's fifth-ranked oil exporting nation, and Mexico's oil industry is a major source (about 37%) of government revenue. Total Mexican exports were 1.5 million barrels per day (b/d) and earned the state treasury $10.4 billion in 2000. Mexico presently ranks seventh in the world in crude oil production, and as a major oil producer, often sets oil prices and production targets in line with those of the Organization of Petroleum Exporting Countries (OPEC). Under the current agreement between Mexico, OPEC, and the other independent producers in place in the first half of 2002, Mexico's export levels are capped at 1.6 million b/d. Mexico is sensitive to the delicate nature of striking a balance in world oil prices. Higher oil prices help export earnings, yet jeopardize domestic industry and the economy of the United States, Mexico's largest trading partner.Mexico is the second-largest supplier of crude oil to the United States, behind Saudi Arabia. In the first half of 2002, Mexico exported 1.446 million b/d to the United States, equivalent to about 16% of U.S. total crude oil imports. Spain, Netherlands Antilles, and Japan are other oil export markets for Mexico.PEMEX is the world's sixth largest oil company, and the single most important entity in the Mexican economy. In early 2000, PEMEX was capable of producing 3.3 million b/d, or about 4% of world production. PEMEX enjoys widespread popular support as it embodies Mexican independence and sovereignty. PEMEX has a monopoly over exploration and production (E&P) of all hydrocarbons, a position guaranteed by Article 27 of Mexico's Constitution which reserves ownership of hydrocarbon resources to the state; foreign participation in the upstream sector is limited to service and performance contract arrangements and turnkey drilling contracts. PEMEX was successful in lobbying the legislature for a 40% raise in its investment budget, after years of underfunding, to $14.7 billion in 2002, with $10.5 billion going for exploration and production. The 2002 funding level compares with an average of $4 billion per year for much of the last decade and $6.5 billion between 1996 and 2001.

Significant recent investments in exploration and production by PEMEX have begun to pay off, and oil production has begun to pick up after suffering several years of declines. PEMEX hopes to produce 3.268 million b/d in 2002, up 4.5% from 3.127 million b/d in 2001 (which was its highest production year ever). New drilling in 2001 was up 60% over 2000, to 446 wells. This total represents more than the total drilled between 1996-98. The success rate for exploration wells was 51% and that for development wells was 91%. PEMEX wants to boost hydrocarbon production even further, hoping by 2006 to increase crude oil production by 30% and natural gas production by 50%. However, PEMEX believes that Mexico's crude oil exports could drop by as much as one-third over the next half-decade unless private investment increases in the areas of production and exploration.Mexican oil production has switched to a heavier concentration of heavy crude over the last several years. In 2001, 59% of PEMEX's output was heavy crude, almost all from the Cantarell field, up from 48% in 1997. Similarly, heavy crude as a percentage of exports has risen from 56% in 1997 to 69% in 2001. The shift in Mexico's crude output to a greater concentration of heavier crude suggests PEMEX has benefited from its investment in Cantarell, while production at Mexico's other fields have declined -- production at the offshore Abkatun field, for example, has fallen from 330,000 b/d of crude in 1993 to 108,000 b/d in 2001.An historical summary of petroleum production and consumption in Mexico is shown in Table 2.

(4)  http://www.energybulletin.net/2882.html
Mexico's energy problem - Oil, politics a difficult mix; Atlanta Journal Constitution, October 29, 2004.
Mary Lou Pickel



( http://www.geni.org/globalenergy/library/national_energy_grid/mexico/LatinAmericanPowerGuide.shtml)