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Mexico Oil and Gas Report Q4 2011
Business Monitor International, Oct 2011, Pages: 92
This latest Mexico Oil & Gas Report from BMI forecasts that the country will slow the rate of production decline that has plagued its vital oil sector over the short term, but that the downward trend will persist without new discoveries or further sector reform – potentially seeing the country turn into a net oil importer by the end of the decade. BMI forecasts that oil production will actually rise slightly from 2.953mn barrels per day (b/d) in 2010 to 2.954mn b/d 2011, the first year-on-year (y-o-y) rise since 2004 when production was 3.83mn b/d. However, this will fall beyond 2011, with production coming in at 2.75mn b/d in 2015. Oil consumption over the same period is expected to rise at a moderate rate, reaching 2.35mn b/d by 2015, implying net exports of just under 400,000b/d.
Unlike oil production, gas output is forecast to rise over the coming years. Gas production is forecast to expand from 52bn cubic metres (bcm) in 2010 to 54.2bcm in 2015. This will do little to reduce import needs, however, as consumption is forecast to rise rapidly from 62.4bcm in 2010 to 74.7bcm in 2015, implying an import requirement of 20.5bcm by 2015, about double the 2010 import requirement.
The long-term forecast for Mexico’s oil sector is dire. Oil production is seen continuing its downward spiral, falling to under 2.5mn b/d in 2018 before reaching 2.32mn b/d in 2020. Meanwhile, a healthy economic growth outlook is expected to see consumption rise by between 1-2% per year. That trend is forecast to see consumption exceed production for the first time in 2019, with an implied net import requirement of 156,000b/d by 2020. This would mark a dramatic turnaround for the country considering that exports peaked at 1.8mn b/d in 2003 and the country was exporting more than 1mn b/d as recently as 2008. There is still plenty of time for Mexico to alter this long-term trend, but without more urgency in oil sector reform and new exploration efforts aimed at tapping deepwater Gulf of Mexico reserves the country faces the loss of crucial oil export revenues.
Global GDP growth in 2011 is forecast at 3.2%, down from 4.3% in 2010. Growth in the eurozone should be marginally higher than 2010, while US and Chinese economic expansion will slow and Japan’s growth will be negative, reflecting the devastating earthquake and tsunami in March 2011. Our oil price assumption for 2011 is US$101.90/bbl for the OPEC basket, falling to US$95/bbl in 2012.
Unless the government introduces a radical shift in energy policy, we expect stateowned Petróleos Mexicanos (Pemex) to retain full responsibility for oil production, with limited international oil company (IOC) involvement.
Mexico holds seventh place, behind Venezuela, in BMI’s composite Business Environment Ratings (BERs), which combine upstream and downstream scores. In spite being one of the region’s largest oil producers, the country now sits in ninth place in BMI’s updated upstream ratings. It lags well behind Bolivia and Ecuador, so is unlikely to move further up the league table over the short term. Although the absolute resource base may be large, the output growth outlook is poor, reserves-to-production ratios (RPR) are low, state ownership of oil assets is absolute and country risk is relatively high. Mexico ranks fourth in BMI’s downstream ratings, reflecting its high levels of oil and gas consumption, refining capacity and moderate country risk, plus low levels of projected oil and gas demand growth. Colombia is just one point behind Mexico and could mount a near-term challenge.
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