OPEC+ Cuts Again

This Sunday the news was spread that OPEC+ is planning a new voluntary cut led by Saudi Arabia that by itself would reduce 500,000 barrels per day. The members of OPEC and their allies could reduce between 1.1 and 1.6 million barrels per day of crude in the world market, which depends on Russia contributing another 500,000 barrels per day to the reduction. In any case, the cut would enter into force starting in May and would extend throughout all that remains of 2023.

Of course this is not a coincidence. In the midst of the financial chaos caused by the inflationary escalation, the continuous rise of the reference rate and the blow to banking institutions, it is not the best moment for energy prices to come back on the offensive. But it is clear that the surprise cut is directed at the United States for a couple of reasons particularly.

“It is clear that the surprise cut is directed at the United States.”

On the one hand, in October of last year the United States promised Saudi Arabia that it would not let oil prices collapse and that, once prices touched $75 dollars per barrel in the Brent reference, the government of the United States would begin to fill its strategic reserve to keep the price stable.

However, when the price of Brent fell below the mark in mid-March, the Biden government showed little interest in beginning the purchase of oil to refill the strategic reserve and even declared that perhaps, toward the end of 2023, they could begin with the purchase to observe the behavior of global markets derived from the recent financial shocks.

On the other hand, just last week the United States Energy Information Agency published that in 2022 the United States broke a record of crude exports, reaching 3.6 million barrels per day, which represented an increase of 22% compared with 2021.

Faced with greater production of American oil in the world and with prices falling in comparison with the previous year, it seemed like a good moment to begin filling the strategic reserve of the United States. This would allow reducing the circulating crude and stopping the fall of international prices.

These two events could have had political implications, or that is what is rumored in the circles that follow the issue. That Biden did not quickly fulfill his word to maintain the international price of oil contributes to the deterioration of relations between the two nations.

For now, the price of oil in the main references has risen around five dollars per barrel after the announcement. It is too soon to know whether this price will be maintained in the future or how the United States will respond or, even, whether the countries, including Russia, comply with the voluntary reduction, but what is a fact is that this occurs at a complicated moment due to global inflationary pressure.

This article was originally published by Energía a Debate.
Date: April 3, 2023
Link: https://energiaadebate.com/la-opep-recorta-de-nuevo/ [Online]

Electricity as a Tax

The electric reform presented by the president and that will be discussed this Sunday considers electricity not as a means to generate wealth nor well-being. At the heart of the declarations and intentions lies a painful truth regarding the origin and objectives of the reform: that electricity be a tax paid by Mexican companies and households.

There is a great conceptual confusion that permeates from equating the history of the national electric sector with that of oil, or even mines because of lithium. At the heart of the confusion, a 2.0 nationalization of electricity in the country is intended, but it is forgotten that electricity by itself is not wealth, but rather it is a means that would allow wealth to be generated if used in the correct way.

I reiterate, electricity by itself does not generate wealth, since we cannot generate it, bottle it and export it so that other countries buy it and profits are obtained from its exploitation. Nor can we use it to infinitely increase our well-being, that is, if price did not matter, having six refrigerators turned on does not improve our quality of life.

To the point of absurdity, neither can we use electricity as a force field to avoid invasions and protect national sovereignty from external aggressions. Much less give electricity to families so that they may feed themselves if food is lacking. We cannot use electricity as money, nor save electricity for the future or to relieve economic recessions.

“The vision is not only archaic, but, deep down, it is tributary.”

Electricity is, then, a means, not an end in itself. It is a means that allows us to improve the conditions of households, the lighting of streets, the mobilization of people and the productive activation of factories. Electricity is a means to mobilize and drive the economy; as a country, having an abundance of electricity means that you can offer it to companies so that they generate productive processes.

In Mexico, around 70% of the country’s electric energy is consumed by companies, from small businesses to large industries, and only 25% of consumption is attributable to households. This means that it is of no use to us to have an abundance of electricity if it is not used to strengthen the economy. That is, if tomorrow all companies stop consuming, Mexican households do not benefit; on the contrary, the economy is harmed.

If a country has an abundance of clean and cheap energy, it immediately positions itself as one of the most attractive countries to invest in and that is what generates wealth, not electricity flowing through the networks without being able to be used because companies abandon and stop investing.

The objective of the electric reform is clear and has been reiterated by its defenders on multiple occasions: that industries, businesses and households pay more for electricity, that they pay more to CFE and that CFE obtains control to set the tariffs it wants to whomever it wants and that each and every one of the load centers only buy electric energy from CFE.

The vision is not only archaic, but, deep down, it is tributary, because instead of seeing electricity as a good or service whose purpose is to enable satisfiers and drive economic dynamism, it is only seen as a tax to extract rents from the companies and households that consume the energy. It is simply and plainly about obtaining more cash flow for CFE.

This article was originally published by Energía a Debate.
Date: April 17, 2022
Link: https://energiaadebate.com/la-electricidad-como-un-impuesto/ [Online]

Energy Martyrs

Listening to the arguments of those who are in favor of the electric reform initiative in the open parliaments, I remembered the fable of the horse and the scorpion. The latter, wanting to cross a stream, asks the horse to help him cross. The horse, cautious as equines are, refuses, in the first instance, because the scorpion has a reputation for stinging and killing other animals.

The scorpion, skilled in his words, makes it evident to the horse that if he were to sting him and cause his death while they cross the stream, both would die, for which reason he would not do it. Thus, the horse agrees, the scorpion mounts him and begins his crossing. Halfway through, the horse feels the pain product of the sting.

While he becomes paralyzed and realizes his mistake, before dying the horse questions the scorpion as to why the sting, if now both would die. The scorpion, without philosophical or ontological arguments, without greater reason than instinct, replies only that this is his nature. Thus, both die, the horse and the scorpion.

Before knowing that from the Coordination of Corporate Communication of CFE those who participate in the Open Parliament representing the company have been instructed to concentrate on arguments that appeal to emotions because, from said Coordination, all this is a staging, it was evident that the arguments of those who are in favor of the electric reform initiative followed a certain pattern.

The most worrying of them is that there is not much talk, in the speeches of those who are in favor, about electricity costs going down, but rather all the arguments are concentrated on the supposed injustices that CFE has suffered since 1992, although much is focused on the 2013 reform.

“The central argument is how to increase electricity prices.”

Deep down, what is worrying are the veiled statements of the officials among which stand out that households must pay more for energy, that businesses must pay more for energy and that industrialists must pay more for energy. That is, the central argument is how to increase electricity prices.

To the vehement cry that the provision of the public service does not seek profits, there is indeed advocacy for continuing to increase the monetary flows that go to CFE either through the increase of transmission and distribution tariffs, limiting those who want to install panels on their roofs because they would represent less income for the company, and increasing the amount of energy that comes from CFE by reserving at least 54% of sales, even if the energy comes from more polluting and more expensive sources.

At no time has there been talk about how the cost of electricity can indeed go down, how to reduce labor liabilities, how to make processes efficient, how to integrate new and cheap technologies, how to empower the consumer, how to expand and strengthen the networks. None of that, only how to increase costs.

This is dangerous for the citizenry and harms us all, we are the horse whom the scorpion asks to help him cross, but halfway through, giving everything to CFE is going to cost us all, in price increases, pollutants, job losses and limitations to freedom. This is a reform that only favors CFE and its arguments are not in favor of the benefit of society and, in the end, it will harm us all, including CFE.

If the reform initiative is approved, we will be, then, energy martyrs to sustain the privileges of a company, the State company.

This article was originally published by Energía a Debate.
Date: February 8, 2022
Link: https://energiaadebate.com/martires-energeticos/ [Online]