Mexico’s sweeping energy reforms and Washington’s normalization of relations with Cuba are both great victories of 2014, but issues of security dull the potential for major projects in Mexico, while downward spiraling oil prices render deep-sea Gulf of Mexico projects too expensive.
The news earlier this week that the US would finally normalize diplomatic relations with Cuba following the release of an American government subcontractor and a swap of intelligence assets opens up a plethora of commercial opportunities for American business, but it will be some time before oil and gas are ready to take advantage of this.
Plummeting oil prices make significant exploration of the billions of barrels of crude believed to be buried off Cuba’s part of the Gulf of Mexico prohibitive right now. It’s there somewhere, but efforts over the past two years by majors such as Spain’s Repsol and Malaysia’s Petronas to find the oil have come up dry—or at least not wet enough for commercial development.
Drilling offshore Cuba will be expensive, and US and Mexican auctions of exploration licenses in the Gulf of Mexico will for now be prioritized by explorers. Even then, catastrophically low oil prices promise to put these big projects on hold.
In a soon-to-be-published exclusive interview with Oilprice.com, Breitling Energy CEO Chris Faulkner notes that current oil prices will put large offshore projects on hold. “These are $100 million wells. The only oil that is more expensive than this is Canadian oil sands,” he said.
Still longer-term, the industry has long considered the US embargo on Cuba a hindrance that has constrained business. The US trade embargo against Cuba led some companies to sink wells that did not contain more than 10% American-made components as required by the trade embargo, according to Fuel Fix.
And on a broader level, lifting the embargo would mean extending US influence in the region, and Gulf oil will play a major role in shaping this interest.
Then we have Mexico, which is luring the American industry across its borders through sweeping energy reforms that for the first time ever open up oil and gas exploration and production to foreign companies—ending the long-running monopoly by scandalized state-run company, Pemex.
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But the New Year, according to Faulkner, may not bring Americans flooding over the border. Mexico, he says, “still has a long way to go.” Not only is it challenged by heavy decline, but drug cartels render it a much more difficult terrain to operate on than any Africa has to offer.
Even though the prolific Eagle Ford shale has its fairway running right under Monterrey, Mexico, making for great potential for extending this massive shale play across the border, this is the heartland of the drug cartels.
“When you talk about defending oil, drilling in Angola and Nigeria, you talk about a bunch of villagers who want to go drill a hole on a pipeline to steal some oil in a bucket. When you go out to Mexico, these guys are in armored cars and are looking to kill you to get cash,” Faulkner told Oilprice.com.
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So while we welcome the New Year with concrete moves to lift the trade embargo on Cuba and a truly reformed Mexican energy scene, 2015 is not likely to be the year of Mexican or Cuban oil, or a bonanza in the Gulf of Mexico.
As 2014 draws to a close and market uncertainty abounds, get an early head start on 2015 by signing up for your free trial of Premium Service and delve into our industry-leading energy intelligence archives to find out just how much our expert analysis can help you make sense of it all.
By. James Stafford of Oilprice.com
