... Business Monitor Report Shows Decline of Mexico Energy Industry

Business Monitor Report Shows Decline of Mexico Energy Industry

A new study on Mexico’s oil and gas sector shows a steady decline in reserves and production in the country, as well as the need for reformation in the country’s energy industry.

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According to the “Mexico Oil & Gas Report,” recently published by energy industry information providers Business Monitor, never before has Mexican energy sector reform been both more critical and more attainable. Business Monitor notes that without reform and a resulting uptick in foreign investment, the country is set to switch from being one of the largest oil exporters in the world to a net importer by the latter part of its 10-year forecast period.

However, while Mexico’s ruling Partido Revolucionario Institucional has recently introduced a proposal to remove long-standing limits on private sector involvement in upstream activity — a key first step — the study shows that whether there is substantial interest from the major international oil companies will be largely determined by the wording of secondary legislation and specific contractual details. As such, although the “Mexico Oil & Gas Report” highlights substantial upside risks, for now Business Monitor retains its relatively pessimistic forecasts for the sector.

The report forecasts a steady decline in both Mexican proven oil reserves and production over the next decade, with the country likely to become a net importer rather than one of the world’s largest net exporters — as is the case at the moment — by the end of its forecast period. This is on the back of several years of declining production, combined with the recognition that it will take a significant amount of time for any new production to come online. Furthermore, the country’s most productive fields, especially Cantarell, are maturing at a rapid rate, resulting in a steady trend of reserve depletion. Business Monitor forecasts 2013 oil production of 2.94 million barrels per day (bpd), falling to 2.82 million bpd in 2017. Production will end the forecast period in 2022 at 2.59 million bpd.

Business Monitor’s bearish view of Mexican oil production is reinforced by several interconnected fundamentals, including Pemex’s relative inexperience in deepwater drilling as well as high tax and debt burdens. Also, the current inability for the company to work with foreign partners also prevents it from spreading capital risk, while also not being able to capitalize on foreign expertise and technology.

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