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Daniel J. Graeber

Daniel J. Graeber

Daniel Graeber is a writer and political analyst based in Michigan. His work on matters related to the geopolitical aspects of the global energy sector,…

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Mexico Readies to Join North American Oil Boom

U.S. oil production last month reached its highest monthly total in 25 years. South of the border, the story is different, though Mexico's decision to end a state oil monopoly in place for 75 years may consolidate the America's supremacy over the international energy market.

Mexican legislators passed a reform ending the 75-year state grip on the energy sector in overwhelming fashion. Petroleos Mexicanos, the former monopoly known also as Pemex, is on course for nine straight years of production decline. That could change as the measure, passed Thursday, was lauded as the most significant measure for the Mexican economy since the North American Free Trade Agreement went into force in 1994.

Mexico is one of the largest oil producers in the world, though production has declined steadily thanks in part to the loss from the Cantarell oil field and other major onshore plays. Mexican President Enrique Pena Nieto said the reform measure could boost production by 40 percent to 3.5 million barrels per day.

Related article: Budget Deal Opens up Parts of Gulf of Mexico for Drilling

The decline in Mexico's oil production posed a threat to an economy that in 2011 generated 34 percent of its revenue from Pemex. The Mexican gross domestic product during the third quarter increased 0.8 percent, reversing earlier declines. A low benchmark interest rate of 3.5 percent, coupled with the energy overhaul, may stimulate the economy even further, as will future private investments.

North of the Mexican border, U.S. Rep. Paul Ryan, chairman of the House Budget Committee, and Sen. Pat Murray, his counterpart in the Senate Banking Committee, proposed a budget measure that would open the shared maritime border between the United States and Mexico up for oil and gas drilling. That deal, the Transboundary Hydrocarbons Agreement, would give explorers access to 172 million barrels of oil and 304 billion cubic feet of natural gas.

The U.S. Energy Information Administration said shale oil, along with offshore reserves in the Gulf of Mexico, helped push the average rate of U.S. oil production in November to 8 million bpd, the highest monthly level since 1988. That level of production, as well as similar gains from Canada, is leaving the North American economy largely independent when it comes to satisfying its energy needs.

For Mexico, the EIA warned last year that reversing oil production declines fell squarely on the shoulders of Pemex because of its control over the oil economy. But not anymore. Lawmakers in Mexico are expected to ratify the reforms by early next year and production-sharing contracts and licenses could be awarded by the end of 2014.

Related article: Amid Declining Latin American Output, Colombian Oil is Booming

OPEC said in its monthly market report for December oil supply from Mexico in 2013 will likely average 2.88 million bpd, a slight decline from the previous year. Mexico is the No. 3 crude oil exporter to the United States, behind Canada, and the country has some of the largest reserves in the region with an estimated 10.2 billion barrels as of 2011.

Major oil companies like Exxon Mobil and BHP Billiton have already expressed optimism over the emerging potential in the Mexican oil sector. Part of the North American success story lies in shale and some of the U.S. plays may reach across the border. Companies that haven't yet queued up to the coming Mexican bonanza may want to head south of the U.S. border as well. Doing so could solidify the Americas as the world's premier oil basin.

By. Daniel J. Graeber of Oilprice.com




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