Mexico
| Oil | |
| Mexico is one of the top three sources of U.S. oil imports. |
According to the Oil and Gas Journal (OGJ), Mexico had 10.5 billion barrels of proven oil reserves as of January 1, 2009. Most reserves consist of heavy crude oil varieties, with a specific gravity of less than 25° API. The largest concentration of reserves occurs offshore in the southern part of the country, especially in the CampecheBasin. There are also sizable reserves in Mexico’s onshore basins in the northern parts of the country.
In 2008, Mexico was the seventh-largest producer of oil in the world. The country produced an average of 3.19 million barrels per day (bbl/d) of total oil liquids during 2008, down from 3.50 million bbl/d in 2007. Of Mexico’s oil production, about 88 percent was crude oil and condensate, the rest consisting of natural gas liquids (NGL) and refinery gain. Many analysts believe that Mexican oil production has peaked, and that the country’s production will continue to decline in the coming years. Based on the March 2009 Short-Term Energy Outlook, EIA forecasts that Mexico will produce 2.9 million bbl/d of oil in 2009 and 2.7 million bbl/d in 2010. The decline is driven mainly by falling production at the super-giant Cantarell field, which has only been partially offset by higher production from other areas.
 The Mexican constitution provides that the Mexican nation owns all hydrocarbon resources in the country. In 1938, Mexico nationalized its oil sector, creating Pemex as the sole oil operator in the country. Pemex has four operating subsidiaries: Exploration and Production, Gas and Basic Petrochemicals, Petrochemicals, and Refining. Pemex is the largest company in Mexico and one of the largest oil and natural gas companies in the world: in 2008, Pemex earned pre-tax profits of $43 billion, while it paid $50 billion to the government in the form of taxes and other transfers.
In 2008, Mexico enacted new legislation that sought to reform the country’s oil sector. The goal of these reforms was to enable Pemex to curb the slide in oil production experienced over the past several years. The measures included several administrative changes, such as adding new seats to Pemex’s administrative board for outside industry experts, creating a new advisory board designed to provide independent coordination of long-term energy strategy, and establishing a new hydrocarbons agency to regulate the sector. The reforms would also permit Pemex to create incentive-based service contracts with private companies. Pemex received greater autonomy under the reforms, including the ability to issue its own debt and establish more flexible mechanisms for procurement and investment.
Exploration and ProductionMost of Mexico’s oil production occurs in the Gulf of Campeche, located off the south-eastern coast of the country in the Gulf of Mexico. The two main production centers in the area include Cantarell and Ku-Maloop-Zaap (KMZ), with smaller volumes also coming from the fields off the coast of Tabasco state. In 2008, the Gulf of Campeche accounted for 80 percent of Mexico’s total crude oil production. Due to the concentration of Mexico’s oil production in the Gulf of Campeche, any tropical storms or hurricanes passing through the area can disrupt oil operations. In 2007, Hurricane Dean forced the evacuation of all offshore platforms and shut-in all production for several days. In 2005, Hurricane Emily also impacted Pemex’s operations in the Gulf.
The Cantarell oil field is one of the largest oil fields in the world, but production there has declined dramatically in the past several years. In 2008, Cantarell produced 1.0 million bbl/d of crude oil, down over 30 percent from the 2007 level of 1.47 million bbl/d and down nearly 50 percent from the peak production level of 2.12 million bbl/d in 2004. As production at the field has declined, so has its relative importance to Mexico’s oil sector: Cantarell contributed 36 percent of Mexico’s total crude oil production in 2008, versus 62 percent in 2004.
 Cantarell consists of four major complexes: Akal, Nohoch, Chac, and Kutz. Production at Cantarell began in 1979, but it soon began to decline due to falling reservoir pressure. In 1997, Pemex developed a plan to reverse the field’s decline by injecting nitrogen into the reservoir to maintain pressure. The plan was a success, with production at Cantarell in 2004 double the level seen in 1995. However, production at Cantarell soon began to decline again, with the rate of decline accelerating in recent years.
The KMZ project has been the largest source of new production growth in the past few years. Located adjacent to Cantarell, the KMZ complex produced 740,000 bbl/d of crude oil in 2008, up from 550,700 bbl/d in 2007. In just the last three years, production at KMZ has doubled, as Pemex employs a nitrogen re-injection program similar to that used at Cantarell. Production growth at KMZ has partially offset declines seen at Cantarell, and Pemex hopes to increase production further over the next few years. However, industry experts expect production at KMZ to also peak in the medium-term, perhaps as a soon as three years.
The offshore area adjacent to Tabasco state contains the Abkatun-Pol-Chuc and Litoral de Tabasco projects. Each project consists of several smaller fields, with combined crude oil production from the area standing at 500,000 bbl/d in 2008. Production from this area has stabilized in recent years, but it is about one-third lower than levels seen a decade ago.
 Onshore fields only represent around 20 percent of Mexico’s total crude oil production. Most of this production is in the southern part of the country, which contains 80 percent of total onshore production. The largest oilfield in the south is Puerto Ceiba, which produced about 50,000 bbl/d in 2008, while the largest oilfield in the north is Arenque (10,000 bbl/d in 2008).
ChicontepecPemex sees the onshore Chicontepec project, located northeast of Mexico City, as a potentially large source of future production growth. Chicontepec contains 29 distinct fields spread over an area of 2,400 square miles. The project currently produces about 30,000 bbl/d, but Pemex hopes to increase production to 700,000 bbl/d by 2017. In early 2009, Pemex announced a tender for the drilling of 170 development wells at Chicontepec, following earlier tenders in 2008 for the drilling of 1,000 wells. According to Pemex, Chicontepec contains an estimated 17.7 billion barrels of oil equivalent of possible (3P) hydrocarbon reserves.
According to industry reports, Chicontepec is very challenging technically. Most of the crude oil at Chicontepec is very heavy, with an API gravity of as little as 18°. The reservoir is also highly fractured and at low pressure, meaning that recovery rates could be low and Pemex will need a large number of wells to fully exploit the area. The region does not yet have much of the necessarily infrastructure for large-scale oil development, such as pipelines, which must be built amongst a dense, urban population.
Crude VarietiesMost of Mexico’s crude oil production consists of heavy crude varieties. Maya, a heavy crude which averages 22° API and 3.5-4.0 percent sulfur content, generally represents around two-thirds of Mexico’s total crude oil production. The country also produces two lighter crude streams, Isthmus (34° API) and Olmeca (39° API). In general, Mexico retains most of the lighter crude streams for domestic consumption and exports the bulk of its Maya production to the U.S. Gulf Coast, which has sophisticated refining capacity necessary to process these heavy crudes.
PipelinesPemex operates an extensive pipeline network in Mexico that connects major production centers with domestic refineries and export terminals. This network consists of over 453 pipelines spanning 2,900 miles, with the largest concentration occurring in the southern part of the country. Mexico does not have any international pipeline connections, with most exports leaving the country via tanker from three export terminals in the southern part of the country: Cayo Arcas, Dos Bocas, and Coatzacoalcos.
Oil TradeOil Exports In 2008, Mexico exported 1.4 million bbl/d of crude oil. The United States receives the vast majority of Mexico’s crude oil exports, which mostly arrive via tanker at the GulfCoast; in 2008, the U.S. imported 1.2 million bbl/d of crude oil from Mexico, of which 97 percent went to the GulfCoast. The U.S. also imported about 100,000 bbl/d of refined products from Mexico in 2008, mostly residual fuel oil, naphtha, and gasoline blending components.
 Mexico is consistently one of the top three exporters of oil to the U.S., along with Canada and Saudi Arabia. The close proximity of the U.S. market and the sophisticated level of refineries in the United Stateswill continue to attract the bulk of Mexico’s oil exports. Mexico’s crude oil exports to the United States rose steadily through the 1980s and 1990s, before peaking in 2004 at 1.6 million bbl/d. The combination of Mexico’s falling oil production and rising domestic demand have led to a reduction in exports to the United States since that peak. From 2004-2007, Mexico was the second-largest source of U.S. oil imports, but fell to third-largest in 2008.
Oil ImportsDespite its status as one of the world’s largest crude oil exporters, Mexico is a net importer of refined petroleum products. In 2008, Mexico imported 550,000 bbl/d of refined petroleum products, while exporting 192,000 bbl/d. Gasoline represented over 60 percent of product imports. A resumption of brisk economic growth is one cause for the increase in refined product imports, along with fixed domestic product prices that are below international market levels.
The International Energy Outlook (IEO) 2009 forecasts that Mexico could become a net oil importer by 2020, with net imports reaching 300,000 bbl/d in 2030. As one of the largest oil exporters to the United States, this has important implications for future U.S. energy supplies. On the other hand, the Annual Energy Outlook (AEO) 2009 Early Release projects that U.S. crude oil imports could fall from 9.78 million in 2008 to 6.95 million bbl/d in 2030. As a result, the long-term fall in U.S. crude oil imports could be larger than the fall in Mexico’s crude oil exports. From Mexico’s perspective, changing into a net oil importer would have important repercussions upon the economy, due to the dependence of the federal government on Pemex for a sizable share of its revenues.
DownstreamMexico’s oil consumption averaged 2.1 million bbl/d in 2008. According to OGJ, Mexico has six refineries, all operated by Pemex, with a total refining capacity of 1.5 million bbl/d. The largest facility in the country is the 330,000-bbl/d Salina Cruz facility. Outside of Mexico, Pemex controls 50 percent of the 334,000-bbl/d Deer Park refinery in Texas. In order to reduce its imports of refined products, Pemex plans to build at least one additional refinery in Mexico. The company announced in early 2009 that the cost of its plans to build a new, 300,000-bbld refinery had increased to $10 billion. Pemex planned to start construction on the facility, which would have facilities to better process the country’s heavy crude oil production, by the end of 2009.
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