Mexico, natural gas and memories of expropriation
http://www.mexidata.info/id408.html
By Nancy Conroy
February 28, 2005
The news, once again, is that yet another natural gas conglomerate wants to locate in Baja California, Mexico. This time it?s an Italian-owned outfit
(Moss Maritime, an ENI-Saipem affiliate) that hopes to construct an offshore floating platform near the beaches in Rosarito. Four liquefied natural
gas (LNG) projects have already been approved by the Mexican government, with a total of 14 different proposals on the table to get these plants into
the state.
These gas plant projects have attracted the usual opponents, especially environmentalists and haters of Big Business. As well, the opposition is set
to become very public on March 18, the anniversary of Mexico?s expropriation of the oil industry. Claiming that the regasification facilities will
pollute Baja California in order to supply U.S. needs, ten or so organizations and groups from Mexico and the U.S. met in Tijuana on February 19 and
20 to plan their first joint protests and marches for March 18.
What nobody seems to be talking much about however, is the scary similarity between these projects and U.S. investment in the Mexican petroleum
industry in the 1930?s. In 1938 President Lazaro Card##as expropriated all oilfield installations in Mexico that belonged to foreigners, including
those belonging to Standard Oil and other U.S. oil companies.
Could these LNG facilities be running the same expropriation risk?
The first consideration is whether foreign ownership of gas plants is even permitted in Mexico? Since four of them have received authorization to
operate, one would think that this is not a problem. It helps that each plant will invest billions in the local economy. But anyone who hasn?t read
Mexico?s Foreign Investment Law lately might be a bit surprised to find that foreign investment in energy and gas is a category that is off-limits to
foreign participation.
What is going on here is that President Vicente Fox favors the gas plant investments, and he is turning a blind eye to the law as written and on the
books. Critics are attacking him on this, accusing him of selling out to the highest bidder.
The fact that foreign ownership of the gas plants is technically illegal raises a rather significant problem. If a new administration that opposes
the plants, or wants to grab them, takes office all they have to do is argue that the plants are illegal ? and wham-o! The plants could be shut down
or expropriated. And if you think there is no political will to pull off a stunt like that, think again.
In 1938 Card##as nationalized the Mexican oil industry, a booming economic sector that generated billions of U.S. dollars in revenue for the country.
During the 1920?s Mexico exported 25 percent of the world?s oil, but the 1938 oilfield expropriation by Card##as caused foreign companies to lose
their entire investments.
Card##as? grandson, Cuauhtemoc Card##as, is a former presidential candidate and political leader who might still have a significant future in Mexico.
Furthermore, there are other candidates and rising political leaders who, potentially, could execute expropriations.
The standard gringo responses to this argument are the following: ?But they would never do that! They would ruin their relationship with us! They
could never do business with us in the future!?
The fact is that they have done it in the past, they continue to do it, and foreign investors just keep coming back. Fortunately or unfortunately,
the foreign investors generally have rather short memories. For example, the land at Punta Banda, south of Ensenada, Baja California, has been
expropriated three times in the last 150 years if you count the eviction of American retirees in the 1990s as an ?expropriation.?
The LNG companies are coming into Baja California, making huge investments, and making enormous contributions to things like the ?Ensenada Social
Development Fund.? Liquefied natural gas could become a new world energy resource that would replace petroleum in the U.S. market. If dozens of
these plants come to Baja California, Mexico could potentially become a world leader in LNG production for the U.S. market. In other words, Mexico
could become a major natural gas exporter just like when it was a major oil exporter back in the 1930?s.
Yet one must ask if these LNG companies, such as Sempra Energy LNG, Shell International Gas Limited, Chevron-Texaco and Moss Maritime, are walking
down the same path that Standard Oil took in 1938? Is history repeating itself? Will things turn out differently this time?
We know what happened to the industry last time, don?t we.
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