Mexico’s Renewed Focus On Oil And Natural Gas

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Mexico’s Renewed Focus On Oil And Natural Gas

Mexico’s new President Andrés Manuel López Obrador(AMLO) took office on December 1 and will serve one six-year term. It was the largest landslide in Mexico’s recent history, and AMLO claims that he will head the biggest transformation since the 1910 revolution.

Energy is clearly at the top of AMLO’s agenda. In order of importance, the focus will be oil, natural gas, and electricity.

State-owned Pemex’s oil and gas output has been plummeting. Over the past decade alone, crude oil production has been declining 4-5% per year, dragging Mexico’s share of global output down from 5% to 2%. Despite the 2013 Energy Reforms that brought deregulation to help, Mexico’s oil output today is about 30% below the 3 million b/d that was promised by then-President Peña Nieto back in 2015

Given that Mexico’s natural gas extraction is associated (i.e., coming along as a byproduct of crude oil production), the country’s gas output has dropped 40% since 2012.

With overly limited E&P of new wells, proven oil reserves have spiraled from nearly 50 billion barrels in the mid-1990s to 7 billion today.

Mexico’s oil and gas collapse is an immense problem. With a population closing in on 135 million people and adding $35 billion in real GDP every year, Mexico’s is the fastest growing OECD energy user. Expected economic growth is a solid 3-5% per year, and oil and gas supply 85% of the country’s energy.

Revenues are dwindling. Although down from 40% a decade ago, oil sales still account for 20-25% of federal revenues – an over reliance that has syphoned money and not allowed Pemex the chance to re-invest in more E&P. The ability to export has plummeted, with sales of crude to primary customer the U.S. dropping 60% in the past 15 years to 680,000 b/d in 2017.

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