This blog post is a taster of our latest Regional Energy Market Report on Mexico, available here
Despite having strong geological potential, particularly in its untapped deep waters, Mexico continues to face a worsening domestic energy situation resulting from a declining reserve base and insufficient upstream capability, compounded by downstream bottlenecks. Faced with this challenging position, steps have been put in place to de-gear the country from current practices with an effort to embrace reform and new methods. A roadmap of continuing in shallow water, combined with a drive into deep plays and a move into onshore acreage was put in place in 2013.
Since December 2016, 38 deepwater blocks have been awarded, 19 of which came in Round 2.4 of January 2018. These latter awards have yielded 17 well requirements, tabulated below.
|Potential drilling requirements (Round 2.4)|
|Shell/Qatar petroleum||4 wells||Block 2, 3, 6, 7|
|Shell||4 wells||Block 20, 21, 23, 28|
|Shell/Pemex||1 well||Block 2|
|Pemex||1 well||Block 5|
|Eni/Qatar||1 well||Block 24|
|Chevron/Inpex||1 well||Block 22|
|Repsol/PC Carigali/Ophir||1 well||Block 10|
|Repsol/PC Carigali||1 well||Block 14|
|Repsol/Sierra/PTT Expl.||1 well||Block 29|
|PC Carigali||2 wells||Block 25,26|
But while progress has been made, political obstacles have arisen as the incoming president, Andres Manuel Lopez Obrador (AMLO), has been elected on an explicitly resource nationalist programme. The postponement of anticipated licensing rounds and the suspension of new acreage offerings until 2021 show he is pursuing this programme with alacrity. The recent move to increase Pemex’s budget by 14% in 2019 and a stated aim of 2.6 million b/d production by 2024 show resource nationalism is at the heart of AMLO’s programme.
For all his populist rhetoric, the new president would do well to temper his policies where necessary if his aim of increased production is to be achieved. The harsh reality is that foreign direct investment is necessary not just financially, but also for risk mitigation and for access to deepwater expertise. Market liberalisation has started to aid adoption in the form of farm-outs and modern floating development production schemes. Any significant row back now could undermine gains already made.
Our comprehensive offshore project database eighty (80) deepwater projects available to be sanctioned from 2019 through to 2031. Until 2017, the average water depth of Mexican offshore projects has been 64m. Future project visibility suggests this average will increase substantially to 536m. If further projects are realised, shallow water gearing will reduce from a current 100% to 70% by 2031. From 2018, 25 projects are anticipated to be located in waters beyond 500m with further ultra-deep (1500m>) projects anticipated from 2022.
This highlights a significant shift in dynamic, one that will require investment and specialist understanding. Simply increasing the Pemex budget may not be enough if Mexico’s deepwater potential is to be realised.While progress may have been slow, Mexico undoubtedly has substantial deepwater potential and given the right pricing environment, this remains a viable avenue for growth. Though the current pricing environment may not be right, a window of opportunity will present itself in any upturn. Mexico should strive to be prepared for the next time an appropriate market cycle arises.