Hydrocarbons Mexico - Eye on Pemex

12 February 2018

Despite Pemex’s production crisis, which was aggravated by budget cuts and operational problems, NOC representatives expect to start reporting positive metrics in the short term. The development of these and other stories in our HCM weekly summary.
Eye on Pemex
Pemex expects to produce 1,953mbd in August, 1,958mbd in September, 1,964mbd in October, 1,989mbd in November and close the year with 2,002mbd.
The NOC also plans to increase its annual oil production by 4% on average over the next four years.
Even though that is an ambitious goal, Pemex Exploración y Producción’s (PEP) director, José Antonio Escalera said that the firm is focusing on onshore areas in Veracruz and Tabasco, where it plans to develop several farm-outs in areas that have 3P reserves of 392mmbl.
“Something I want to highlight is that Pemex is gaining international companies’ trust; we participated in this tender with Shell (LON: RDSB), which we had not done before, and we reaffirmed a strategic alliance with Chevron (NYSE: CVX) and Inpex,” he added.
Despite the NOC’s optimistic production goal, the International Energy Agency (IEA) said that oil production will continue its decline rate during 2018, reducing by 130mbd.
IEA’s Keisuke Sadamori said that Mexico could report a production of 1,818mbd by the end of the year, representing an annual drop of 6.7% that could be explained by the decline of Mexico’s current producing-blocks, and the Mexican Association of Hydrocarbons Companies (AMEXHI) estimated a production of between 1,500mbd and 2,000mbd in 2025, in a positive scenario.
The NOC also plans to increase its fuel production to 409mbd during 1Q18, and it is considering importing 22.6mbd from the US to mix it with heavy crude and increase processing capacity.
In addition, Pemex and Mitsui would ally to increase fuel production at the Tula refinery.
The goal is to increase fuel production by approximately 40%, investing US$2.6B, thus reducing dependence on US imports.
The Director of Pemex Transformación Industrial (Pemex TRI), Carlos Murrieta, said that even though negotiations are on the right track, he still does not know if there will be a final agreement, but here is something we do know: the NOC’s fuel production target means that it must increase this metrics by 77% compared to 4Q17; a challenging goal to achieve in such a short time.
In addition to its production goals, Pemex announced that it is working to increase its oil storage capacity and it is currently working on the peninsular project to increase fuel transportation to Cancun.
The firm is also developing the Gulf-Center project, aimed at increasing capacity to import fuel into the Mexico Valley; the country’s largest consumption center.  
Pemex has four days of oil storage, but that amount that can change depending on the area; it can be up to 10 days on the coast and below five days in the center of the country.
The NOC has ambitious goals for this year and even though its performance has not been the best, it continues to have the highest-valued brand in Latin America according to Brand Finance’s Global 500 report for 2018.
Energy Reform opened up several business opportunities for Pemex, but at the same time many challenges. The company must adapt to a free and competitive market if it wants to lead the industry over the long term.
Deals and opportunities
According to authorities, the Ixachi I well (a new discovery in Veracruz), revealed a deposit with reserves of up to 1.5mmbl
Experts estimate that Ixachi I could add between 200mbd and 500mbd to Mexico’s current production of 1.9mbd. (Back in 2004, Mexico’s production was double that).
David Shields, director of the Energy of Mexico magazine, on the other hand, showed a less optimistic position on the discovery and said that “Mexico will have no certainty about the field’s production until more wells are drilled. That will give a more accurate idea of the size of the deposit.”
In other news, Petrobal’s Carlos Morales spoke about the firm’s production plans in Mexico and said that production results at the Ichalkill and Pokoch fields could be seen in early 2019, and exploratory investments will represent US$1.5B and US$2B over the next four years.
When it comes to the energy market, Banobras announced that it plans to boost the development of the Mexican energy market by financing 19 projects throughout this year; five wind farms, four gas pipelines, two oil projects, seven solar parks and hydroelectric plants that represent investments of  MXN$15.5B.
Social conflict
The Energy Secretariat (Sener) is seeking the consent of 80 indigenous communities in 12 states of the country, to build energy infrastructure in their borders such as gas pipelines, power generation plants and two blocks that were awarded in Round 2.2.
In May, 2017, the Zoque community started protests against the development of oil activities in their territories.
A month later, Sener requested for contractual areas 10 and 11, located in the Zoque and Tzotzil communities, to be excluded from Round 2.2.
In August, the community said that the mining and geothermal industries were next.
It is safe to say that this issue needs to be taken care of immediately, especially because behind these communities are the institutions like the Mexican Alliance against Fracking and the National Autonomous University of Mexico(UNAM).
Secretary of Finance and Public Credit (SHCP), Jose Anotnio González, said that 70% of the fiscal stimulus for high fuel prices goes to the 20% of the population with the highest income and the government should rethink which subsidies are “good public policies.”
On the other hand, Commissioner of SHCP’s Tax Revenue Policy Unit, Juan Rebolledo, said that the subsidy has helped to have a “soft” transition to the liberalized market, although Mexicans have not seen it that way, as prices increased substantially during the last year.
Gas Natural Fenosa said that it seeks to connect a million more customers to its distribution network in Mexico during the next five years, adding that that Mexico has an important advantage in the gas industry because it has the cheapest natural gas prices in the world.
Other news
AMLO would try to stop Mexico’s oil from falling into foreign hands. He also would review recently handed out contracts.
Mexico ruled out joining the US’s oil sanction against Venezuela.
Mexico ranks sixth in shale gas production worldwide.


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