Raub Report February 2014

Mexico’s Pemex oil company has vastly underperformed for years.  It is state-owned and inefficient but since it is the biggest source of revenue for the Mexican government, next to payments from the U.S., it is critical to their stability and prosperity.  What to do?  Mexico is now opening to outside oil and gas producers for help in developing their vast resources. Remember, the Eagle Ford Shale does not stop at the Rio GrandeRiver, but extends well into northern Mexico.  Yet, Pemex does not have the resources to develop this shale oil field. Oil production there has dropped by 1/3 in the past ten years and is actually less than the state of Texas produces. Well, opening to foreign companies is a very tricky political problem for the Mexican government but no longer one they can ignore.  “Foreign companies” of course means U.S. oil producers that are, of course, conveniently located in Texas.

So, not only does Texas produce one third of U.S. oil now, and rank along the major oil producing countries, but, Texas based companies will have the best opportunity to develop the vast oil and gas resources of Mexico, too.  “Houston, do we have a problem?”  Nope. It will just keep growing exponentially for the foreseeable future.  Exxon is just now completing its 20 office building world headquarters near The Woodlands and Conroe.  And, Shell Oil has announced it will build its world headquarters in Conroe, too.

Now, let’s step back for a moment and think – the U.S. is becoming energy independent, if the politicians don’t screw it up. And, we are becoming an oil and gas exporter, if the politicians don’t screw it up.  Where else is oil massively exported?  The Middle East.  Recent events there indicate the civil discord is getting much worse, not better.  Al-Qaida has taken over Anbar Provence in Iraq.  U.S. diplomacy has made Iran the dominant player in the entire region.  We have certified Assad’s legitimacy in Syria by negotiating with him. We have left Iraq and will soon leave Afghanistan.  The whole area is now seeing a scramble to fill the power vacuum we have left behind.  K.T. McFarland, a national security expert, recently observed on Fox News, that, while we in the West see war as a repugnant event to be avoided or ended as soon as possible, in the Middle East, on the other hand, it is the opposite: war and conflict are seen in the Middle East as the natural state of affairs; “civil war” is seen as the norm and peace is only an interlude to regroup for another strike.  This goes back thousands of years, even before the times of King David.  The two biggest factions are the Shiites versus the Sunnis, two religious factions of Islam that will only stop fighting when the other side is wiped out.  Then, there is Al-Qaeda versus everyone else, the Taliban, Hezbolah, on and on.

What does this all have to do with San Antonio Commercial Real Estate?  Just this:  if the U.S. can become energy independent from Middle Eastern oil, it will be a huge game-changer for world politics.  Texas sits in the middle of this action.  And San Antonio is a pretty good place to be in the Great State of Texas.