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 and Globalization

The energy transition planned and developed through international agreements is framed within the project of world order after the Cold War. This project, however, requires economic stability and global peace to foster international cooperation from an approach of mutual gains. Current events not only question the validity of the world order based on globalization, but also change the traditional paradigm of the energy transition that was gestated in this world order.

Let us go back in time three decades and return to the 1990s. In general, it could be said that this decade was marked by international optimism and economic stability, not to say an economic boom. The fall of the Berlin Wall, the disintegration of the Soviet Union and the end of the Cold War brought to an end the bipolar global order that governed the international community since the 1950s, which generated confidence to establish a new world order based on international free trade.

The appearance of regional blocs based on this new idea was a reflection of the possibility of a global world. The North American Free Trade Agreement created the largest commercial region in the world, while the Maastricht Treaty laid the foundations to advance in the integration of the European Union. The need to advance in the development of the less favored countries in Europe, Asia and Latin America was also recognized, leaving aside colonial aspirations of the countries but generating mechanisms for free trade.

“It was recognized, then, a threat to international security different from the traditional threats of the postwar period.”

With the threats of mutual global destruction due to a nuclear conflict behind, the international community began to concentrate on other social demands such as climate change. In the 1990s, the Earth Summit, the creation of the United Nations Framework Convention on Climate Change and the adoption of the Kyoto Protocol were pillars to guide the first global efforts of decarbonization. It was recognized, then, a threat to international security different from the traditional threats of the postwar period.

Facing the Russia and Ukraine conflict, the possibility of continuing under this model of multilateral cooperation in the future is questioned and it reveals the difficulty of maintaining cohesion to achieve common objectives, particularly in the energy and international decarbonization issue. It would seem that with this the stage of international optimism closes to return to that of multipolar political realism where each region defines its priorities based on its particular interests.

This article was originally published by Energía a Debate.
Date: Aplirl 5, 2022
Link: https://energiaadebate.com/la-energia-y-la-globalizacion/ [Online]