FOCUS: Latin America's ailing oil giants try to stop the rot
| Date | 01 February 2015 |
| DOI | http://doi.org/10.1111/oet.12223 |
| Published date | 01 February 2015 |
FOCUS
Latin America’s ailing oil giants try to stop the rot
LatinAmerica’stwomainoilproducers–Mexicoand
Venezuela–are in trouble. With their output and exports
declining, these oil-based economies are suering. Both
countries plan new measures this year to revive their oil
industries; and both are looking to private and foreign
involvementin their hitherto state-dominated oil sectors
to bring about a transformation of their struggling oil
sectors. Mexico is to end the 77-year monopoly of its
national oil company, Petróleos Mex icanos (Pemex). e
state-owned Petróleos de Venezuela (PDVSA) is asking
foreign oil companies to invest $110bn over the next
ve years in order to raise t he country’s oil production
capacity by 2.8 mn bpd.
Mexico deregulates
Mexico was one of the earliest countries to establish a
national oil company. Resentme nt at the dominance of
foreign oil companies during the 1930s led to demands
for the nationalization of the industr y and, in March
1938, foreign oil assets were expropriatedand a new state
oil company, Petróleos Mexicanos, was established to
own and operate almost the entire oil industry, down-
stream as well as upstream. Pemex was given the task
of establishing a downstream industr y to provide cheap
fuel for economic development inside Mexico.
is new role produced a sort of self-reliance within
Pemex that cut it o in many ways from g lobal oil and
nancial markets and, as a result, restricted its access
to new technology. is self-reliance took on a political
tinge as Pemex became a model for oil-producing coun-
tries across the Arab world and elsewhere of a successful
and independent nati onal oil company no longer obliged
to rely on foreign rms to r un its oil industr y.
ecompanyturnedtoworldexportmarketsinthe
1970s aer an economic crisis forced the government
to seek new foreign earnings. is era also coincided
with the discover y of large new oilel ds oshore. Mex-
ico’s economy became heavily dependent on both rising
production and rising world prices. Its sensitivity to the
latter was demonstrated as early as 1982. With the price
of crude oil falling, Mexico could no longer service its
foreign debt and sought a bail-out from the US. Mexi co
beneted as oilprices recovered and its output rose until,
in 2004, its oil production peaked at 3.8mn bpd and
began to decline, falling to 2.8 mn bpd by 2014. Untilthat
date, the fall in productioncould be oset by the increase
in world oil prices. Since June 2014, the situation has
changed dramatically such that Mexico now appears to
face a future of declining oil productionand weak prices.
e government’s answer to this has been to announce
that it is ending Pemex’s upstream monopoly from this
year and that foreign companies wil l once more be
allowed to bid for production licenses for the rst time
since 1938. A number of areas are to be opened up for
outside participation, beginning with 14 shallow-water
blocks in the Gulf of Mexico.Bids are due in by July 2015.
Other bidding rounds are set to follow and a number of
attractive prospectsappear to be on oer. e processof
upstream deregulation nevertheless carries a good deal
of risk. e present low price of crude oil maywell deter
several bidders from committing to heavy expenditure
on exploration, espe cially in some of the more dicult
and marginal prospects. Some oil industry insiders have
already privately advised the government to postpone or
at least modify its rst licensing round. e Oil Min-
istryisneverthelessanxioustogoaheadwithonlyminor
changes to its timetable and conditions.
Production down
Mexican oil production has fallen by about 1 mn bpd
since its peak of 3.8 mn bpd in 2004, posting a decline
in each year since then. Last year’s production of
2.8mnbpdwasmadeupof2.4mnbpdofcrudeoil
and a further 0.4 mn bpd of natural gas liquids (see
Table A). Output of crude oil was supposed to average
2.52 mn bpd in 2014, according to a forecast issued
in April by the Ministry of Finance. By July, however,
this had been revised downward to 2.43mn bpd. e
Finance Ministry went on to predict an increase in 2015
to 2.62 mnbpd; but this looks highly unlikely.
e problem for Mexico–which remains
unaddressed– is that its largest oileld-complex,
Cantarell, is in long-term decline and no eld dis-
covered since it began its decline has been large enough
to oset Cantarell ’s lost production . Atits p eak, Cantarell
was producing 2.2 mn bpd: now it is about 0.4 mn bpd,
and output is falling by over 10% annually. ere
were hopes that another large oshore eld-system,
Ku-Maloob-Zaap (KMZ) would to some extent com-
pensateforthenaturaldeclineofCantarell,butoutput
Table A
Mexico: Oil Prole, 2014
Proven Reserves 9.8 bn bbl∗
Reserves Remaining 9.6 years†
(mn bpd)
Production
Crude Oil 2.4
NGL 0.4
Total 2.8
Consumption 2.1
Net Exports 0.7
∗As of 1.1.15
†Based on 2014 production
Totals rounded
Source: (Reserves) Oil & Gas Journal
(Other) Pearl Oil estimate
© 2015 John Wiley& Sons Ltd
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