Mexican pipelines under attack

US energy resources are in enough trouble already, and now a potential new threat is emerging: rebels in Mexico are going after natural gas pipelines there.

Mexico is the number two supplier of oil to the US after Canada. No wonder oil hit $78 a barrel today (that's higher, by the way, than it was in the aftermath of hurricanes Wilma and Katrina in 2005).

The pipelines belong to Mexico’s state oil and gas monopoly, Pemex. They are allegedly being targeted by left wing rebels of the tiny Popular Revolutionary Army (EPR).

Six explosions hit natural gas pipelines in the eastern state of Veracruz on Monday. In July, the same guerrilla group claimed responsibility for similar attacks on two major gas pipelines.

So far the targets have been natural gas pipelines supplying Mexican cities. The US does not rely on Mexico for natural gas, which is mostly supplied domestically and from Canada. But yesterday's repeat performance "is evidence of the group's potential to become a major security headache for the Mexican government, and possibly even a threat to U.S. oil supplies," according to The Wall Street Journal.

Pemex says the blasts would mean hundreds of millions of dollars in lost production. There are already major concerns about a lack of investment in new oil exploration in Mexico which could result in a drop in long term production.

My colleague, Ian Campbell, a Mexico expert for breakingviews.com, an online financial commentary, writes:

"The explosions made a big noise in a jittery world oil market, helping to drive the world oil price to a record $79 a barrel in New York. But the Organisation of Petroleum Exporting Countries has been quick to offer an additional 500,000 barrels a day in crude - about one fifth of Mexico's entire production. The problem for the oil market is that the extra supply won't come till November. Crude and gasoline stocks are low now ......

The EPR is the newest and most extreme manifestation of divisive politics harming Mexico's prospects. The country's oil output is declining quite rapidly as its main oil field, Cantarell, dwindles. Mexico needs to open up deep water oil fields, but Pemex, the inefficient state-owned oil monopoly, lacks some of the expertise to do so. Yet the country resists the entry of foreign oil companies.

President Felipe Calderon would like to bring change but leads a party with a minority in the Congress. "Our oil" is a Mexican symbol. Wrong-headed nationalism is strong. Even if he wanted to, Calderon wouldn't be able to break Pemex up. The EPR, unfortunately, can break up its pipelines. Its emergence doesn't help at all."

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- David Adams