Mexico & Nafta - February 2009 (ISSN 1741-444X)

The government can still afford to ignore the slide in oil prices thanks to its astute deal in July, at the top of the market, to fix the export price for 66% of its exports at US$70 a barrel for 2009. The main problem facing the state oil monopoly Petróleos Mexicanos (Pemex) is dwindling production.

On 10 February Pemex announced that it would invest US$60bn by 2012, the end of President Felipe Calderón's term, to boost production. In 2008, Mexico's oil production was at its lowest level in 13 years.

Jesús Reyes Heroles, the director of Pemex, admitted that production from Mexico's main oilfields would fall in the next eight years. He said that the company would have to invest more to boost secondary production.

Pemex's problem is that its main undeveloped onshore oilfield, Chicontepec, is hideously complicated, geologically. Pemex is sure that Mexico's portion of the deep waters of the Gulf of Mexico hold huge reserves of oil (50bn barrels, Pemex guesses) but Pemex has neither the financial nor the technological resources to tap these fields. It is also far from clear that the government's tepid reform of the oil industry in 2008 will allow Pemex to go into partnership with foreign companies to develop these fields on mutually advantageous terms.  

The big problem is the decline at Cantarell, the country's main oilfield. Over the course of 2008, Cantarell's output fell by 36%, down to just 811,000bpd in December. As recently as 2004, Cantarell was producing 2m bpd.

Reyes Heroles said that Pemex was expecting its production in 2012 to be 1.1m bpd below its 2008 level. By 2017, Pemex expects production to be down by 1.8m bpd.

Pemex is hoping that production from the Ku Maloob Zaap field will continue to rise over the next four years, but also admits that this field's production will start to fall from 2012. This year, however, Ku Maloob Zaap should overtake Cantarell as the country's main oilfield.

Reyes Heroles denied that Pemex would on the point of collapse, despite the bleak production outlook. He claimed that the company's prospects had been transformed by the recent oil sector reform.

This looks unlikely. Few petroleum geologists believe that Pemex will be able to increase its production from Chicontepec from its current level of 33,000bpd a day to 700,000bpd by 2017.

Pemex is also expecting to start production from its deep water fields in the Gulf of Mexico by 2015.

Prices: On 10 February, the price of the Latin American benchmark oil basket, West Texas Intermediate (WTI), fell by 5%  in one day to US$37.5 a barrel, close to its 2009 low. This fall followed a gloomy report from the US Energy Information Administration which suggested that world demand for oil would drop by over 1.17m bpd in 2009, compared with 2008.

Production: Mexico's crude oil output in 2008 averaged 2.799m bpd, down 9.2% on 2007. Oil exports fell 16.8% annually to 1.4m bpd. Export receipts, however, rose 22% annually to US$43.3bn, a new record. The average oil price was US$84.3 per barrel.