Petróleos Mexicanos (PEMEX) began the second week of December 2015 with a steep drop of 6.71 percent in the price of its oil compared to previous days, while industry oil prices only dropped 1 percent worldwide. Mexico’s oil mix finished the week with a price of $29.91 per barrel. This low price has not been seen since late 2008. As for the U.S., natural gas prices have also been declining but could be worse if Mexico was not consuming more natural gas.
U.S. natural gas flowing south of the border increased by 60 percent to average a record 3.26 billion cubic feet a day. The new pipelines built along the border with Mexico have driven the increase of U.S. natural gas exports. Power generators across the border and industrial users taking advantage of low U.S. shale gas will more than double those pipeline flows in the next few years.
This year’s gain on southbound gas deliveries to Mexico increased exponentially. Kinder Morgan Inc. joined up with TrailStone Group to form a Mexican gas marketing company to serve industrial facilities and electricity production companies. The project, operated by TrailStone, plans to begin providing natural gas in the first quarter of 2016.
Most U.S. crude oil exports have been banned since the 1970s. The recent removal of the nation’s ban on most crude oil exports marks the most significant shift in U.S. oil policy in more than a generation.
With one-third of the Mexican government’s budget funded by PEMEX, a decline in the state-owned oil company’s production hits the government heavily. In the past decade, insufficient operational capabilities, lack of capital and maturation of the once abundant Cantarell field and Chicontepec basin have dropped production.
Mexico’s crude oil production, which comprises about 85 percent of its total liquids production, fell to a monthly average of 2.5 million barrels per day, its lowest level since 1994. By comparison, Texas is expected to produce more than 2.7 million barrels per day as of 2014 data. During July 2014, the entire production for the U.S. reached 8.4 million barrels per day, compared to the 6.5 million barrels that were being produced during 2012. Mexico’s petroleum trade balance with the U.S. is now negative for the first time in the past 40 years.
According to PEMEX, it has decided to import oil from the U.S. for refining and use U.S. companies to manage that refining. In the near future, we will see how this industry takes shape. Mexico needs a push to develop its four upstream areas: exploration and production, supply chain management, infrastructure development, and financing and private equity.
The highly anticipated round one, in which the Mexican government has tendered several blocks to private companies and PEMEX, is currently in progress.
A challenge still remains, which is measuring the national content percentages that Mexican E&P companies will need to comply with. The objective is to increase Mexico’s internal growth and not have to bring supplies from another country. The reality is that the oil and gas industry in Mexico still needs more development, especially with creating new suppliers internally. Cuevas & Cuevas LLP is helping Texas oil and gas suppliers connect with the newly formed Mexican E&P companies. There are many opportunities for oil and gas suppliers that are interested in moving inventories to this new emerging market developing across the border.