Mexico still has a strong potential for oil and gas despite faltering due to nationalisation policies and a poor health and safety record in recent years. Despite a poor track record from Mexico’s state-owned oil company Pemex and the introduction of policies that have pushed away foreign investors, recent developments show that Mexico’s oil and gas industry may have a long way to go before the green transition curbs demand.
In 2022, Pemex reported profits of $1.2 billion, boosted by high oil prices throughout the year. This marks the firm’s first annual profit in a decade. Although, Pemex was still in $105 billion of debt last year. In addition, despite a push from President Andres Manuel Lopez Obrador (AMLO) to nationalise Mexico’s energy industry, private investment in the oil and gas sector is beginning to grow. The private sector funded around 5% of the country’s oil production last year.
The combination of new private investment and increasing condensate production has helped Mexico to reverse the downward trend in oil production that started in 2004. The country’s oil output rose to almost 2 million bpd in 2022, similar to pre-pandemic levels. Production is expected to average around 1.93 million bpd this year and 1.91 million bpd in 2024. The country’s energy regular CNH reported that natural gas output for 2022 totalled 4.07Bf3/d, while Pemex said it was closer to 4.68Bf3/d. Its proven oil reserves stand at 6 billion barrels, with around 70 percent of this located offshore.
A new refinery – the Olmeca Dos Bocas refinery, in Tabasco is expected to come online this year. The project has been developed under AMLO’s energy security strategy at a much higher cost than originally projected of $12 billion. New coker units will also come online this year in the Tula and Salina Cruz refineries. And in 2022, Pemex purchased ownership in Houston’s Deer Park refinery for $596 million.
The successes of 2022 demonstrated that Mexico still has significant oil potential at a time when the U.S. and other world powers are looking to ensure their energy security while also striving for an ultimate green transition. Some of Mexico’s biggest producing fields have been around for decades, such as the Maloob, Zaap and Balam oil fields. But there is also hope for large-scale production in several recently developed regions. Oil output in the Tupilco Profundo totalled 48,000 bpd in November last year and the Pokche field has seen a production increase from 3,900 bpd to 32,000 bpd over the last two years. The Racemosa field increased production from zero in 2020 to 4,000 bpd in 2022, while the Teekit Profundo increased output from zero to 6,800 bpd over the same period. Pemex expects to see high production levels from Racemosa over the coming years.
In March, Italian oil and gas major Eni announced the discovery of oil in the Yatzil exploration prospect in Block 7, in the mid-deep water of the Cuenca Salina in the Sureste Basin in the Gulf of Mexico. The firm believes there to be around 200 million barrels of oil in the area. This is the second well on Block 7 and the eighth successful well drilled by Eni in the Basin. This discovery follows recent finds in Block 10, making Eni – one of Mexico’s biggest private oil industry investors – optimistic about the region’s oil and gas potential.
Eni has a 45 percent stake in Block 7, with Scottish firm Capricorn Energy PLC holding 30 percent and Mexico’s Citla Energy SAPI de CV with 25 percent. Eni produces an average of 30,000 bpd from its Area 1 project, which is expected to come fully online by 2025. Eni first entered the Mexican market in 2006 and now holds rights in eight exploration and production blocks, all in the Sureste Basin in the Gulf of Mexico.
As well as developments in the private sector, Pemex also has big plans to boost its oil production. In March, Pemex and a consortium led by U.S.-based Talos Energy, including Harbor Energy and Wintershall Dea, submitted a development plan for a largescale offshore oil field to regulators. Talos and partners originally discovered the Zama field in the Gulf of Mexico in 2017 and have been fighting for exploration rights ever since. It initially hoped to develop the field without Pemex, which held rights to an adjacent block that turned out to include part of Zama. Pemex got the backing of Mexico’s energy ministry to manage the development, despite having drilled no wells in the neighbouring field.
The field is thought to hold around 850 million barrels of oil, with an output potential of 180,000 bpd, according to Pemex. The development plan includes two offshore platforms and 46 wells. Pemex plans for production from the field to be transported to the coastal Pemex-run terminal of Dos Bocas. Mexico’s energy regulator CNH is expected to deliver a response within 85 days. If this project is successful, there could be a positive future for Mexico’s oil and gas industry, for as long as the global demand for fossil fuels remains high.
By Felicity Bradstock for Oilprice.com
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