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Central America: Regional energy plan to provide relief for Pemex

MEXICO has invited Central American leaders to meet in December to discuss an energy project that is part of a broader scheme aimed at boosting regional co-operation in areas such as transport, energy and telecommunications.

The energy project – warmly received by a group of Central American heads of state in Argentina last month – is part of an initiative known as Plan Puebla-Panama, which was signed in 2001 by Mexico, Belize, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama. The outline of the scheme, which would cost between $5bn and $7bn, envisages the building of four main projects: an oil refinery, a liquefied natural gas (LNG) terminal, a gas pipeline and an electricity grid.

The 250,000 barrels a day oil refinery, which would be built to process Mexico's heavy crude rather than the lighter crude that the region's other refineries are designed for, would cost an estimated $3bn. It is yet to be decided in which country the refinery would be sited, although the undersecretary for hydrocarbons at the Mexican energy ministry, Hector Moreira, has said Panama is probably the best equipped country in the region to receive Mexican oil tankers.

The LNG project involves building a pipeline from new LNG import terminals on the Pacific coast down through Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica and Panama. The line, which would be about 2,700 km long and would cost an estimated $1.7bn, would be built in four stages over 12 years. By 2013, Mexico forecasts an LNG import potential of 3.4bn-4.6bn cubic feet a day (cf/d).

Funding for the energy projects would be a mix of public and private money. For example, Mexico sees the oil refinery being jointly financed by state-owned Pemex, Central American governments and private-sector investors. Multilateral development organisations, such as the Inter-American Development Bank and the Central American Bank for Economic Integration, would also be encouraged to help finance the projects.

The rationale behind Mexico's regional energy scheme is to help its poorer neighbours cope with high oil prices, which are crippling local economies. Hugo Chávez, the president of the continent's other major producing country, Venezuela, already sells oil cheaply to those countries, but Mexico claims its energy plan offers a better long-term fix to the region's energy problems.

Experts agree, although they also point out that Mexico has a vested interest in seeing its expensive and ambitious plan come to fruition, not least because it would leave a lasting legacy for the outgoing president, Vicente Fox. By building a refinery outside Mexico, Pemex would be able to employ cheaper labour and form commercial partnerships with foreign investors – something that is severely restricted at home. It would also be able to process its crude more efficiently and might eventually build a network of Pemex fuel stations – the first outside Mexico. The government even admits some of the refined crude could be exported back home.

Analysts say all this would be enormously beneficial to Pemex, which is struggling under a pile of debt and has failed over many years to invest sufficiently because of its heavy tax burden. Insufficient investment has, for instance, already converted Mexico into a net gas importer, despite the country's abundant natural gas reserves. There are even concerns that without new investment, the country risks losing its status as a net oil exporter as production from its main Cantarell field declines.

Mexico would also benefit from the building of the LNG terminals, which would enable the country – which consumed 5bn cf/d, compared with just 200m cf/d in the rest of Central America – to import relatively cheap LNG from overseas and reduce its dependence on the more costly gas it imports from the US.

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