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Page added on June 4, 2014
The Promise of Mexican Oil
The miracles of modern engineering and, specifically, fracking and deepwater drilling are rapidly changing the risk-reward assessments of petroleum investment. When OPEC members meet in Vienna next week, the organization is scheduled to offer its latest assessment of global demand and projected production. And closer to home, U.S. oil titans are aligning with Mexico’s Pemex to secure access to new crude oil.
As I reported in an earlier post, there’s good reason for Mexico’s newfound optimism and popularity. At the time, Pemex, the state-run oil monopoly and world’s fourth largest producer, had just discovered three deep-water deposits in the Gulf of Mexico, with an estimated 26.5 billion barrels of crude oil. And there’s no doubt about the high quality of that crude.
So it shouldn’t have surprised anyone when California-based Chevron quietly became the first major international oil producer to partner with Pemex following landmark legislation that Pemex passed last year. As Bloomberg reported, Mexico passed an energy law that ended Pemex’s 75-year production monopoly, allowing private companies to tap into the country’s 13.4 billion barrels of proven oil reserves. Mexico’s energy ministry estimates that private investment is expected to generate $30 billion annually.
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With the exceptions of Royal Dutch Shell and BP, Chevron produces more crude from the U.S. section of the Gulf of Mexico than anyone else, and with the quality of the crude in Mexico’s court, Chevron is seeking exploration opportunities in deepwater, shallow water or shale.
Exxon has also negotiated a technical collaboration agreement with Pemex, and it stands to reason that additional firms may join the waiting line of suitors. High-quality crude at prices potentially well below Brent or WTI is too attractive to resist. And in the long run, U.S. consumers could benefit as Pemex further diversifies available options for U.S. refineries that may yield savings at the pump too.
4 Comments on "The Promise of Mexican Oil"
rockman on Wed, 4th Jun 2014 9:17 pm
“High-quality crude at prices potentially well below Brent or WTI is too attractive to resist.” So that must explain why current Deep Water GOM production is selling for so much less than Brent/WTI???
“…U.S. consumers could benefit as Pemex further diversifies available options for U.S. refineries that may yield savings at the pump too.” Assuming, of course, that México exports most of that future production to US refineries. Currently México imports products from US refineries equivalent to about 25% of the value of the oil they export to the US. In addition to opening up exploration to foreign investors a less discussed part of the change in the law allows foreign investments in domestic refining. A major issue with PEMEX given how much of their current oil income must be spent on imported products. A potential China began discussing with México over a year ago. Part of that plan is to help México with their huge trade deficit with China. Currently a significant portion of México’s capital is transferred to China.
In addition there’s also the potential to export that future oil production to other countries. Such as China to which they have already begun a small oil export pilot program.
So far the assumption that the US can outbid most other economies for the oil imports it requires has been a safe bet. Time will tell if we remain the primary oil export market for not just México but Canada also. Many economies thought they had their future oil imports assured. The economic growth in China and India as well as the ELM dynamic have proved such assumptions false for a number of countries.
How much oil the world produces is not relevant to the stability of the US economy. Never has been. IMHO what has been and will continue to be critical is how much oil the US imports and at what price. Despite increases in domestic production the US economy is still very dependent on oil AND NG imports.
TIKIMAN on Thu, 5th Jun 2014 6:37 am
I think the world is starting to realize Cantarell is going into depletion. It has had a rollor coaster decline since 2006 and it’s now in free fall.
The US gets 15% of it’s oil from Mexico so trouble is a few years away.
Juan Pueblo on Thu, 5th Jun 2014 8:15 am
Mexico may experience a little bump in its oil production for a few months or a couple of years and then go back to its current declining production course. Mexico will become a failed state not long after they lose their capacity to export oil. If I were a Mexican living there I would try to get out now, while there are some places to go. The world is running out of decent places to migrate to.
Viva Mexico!
wildbourgman on Thu, 5th Jun 2014 10:04 am
Mexican’s leaving Mexico Juan? It’ll never happen.