Sheky Espejo, Platts S&P Global

MEXICO CITY
EnergiesNet.com 11 25 2024

Mexican state oil and natural gas company Pemex could struggle to meet its 2025 operating goals, as the budget it has received from the federal government is too «tight» and leaves little room to maneuver, experts have recently told S&P Global Commodity Insights.

Without a comprehensive change in its policy, experts believe Mexico’s crude production could soon decline to a level where it would have to import crude to feed its refineries.

On Nov. 15, the federal government submitted its proposed 2025 budget to Congress for its approval. The budget includes Peso 464.3 billion, or $22.75 billion, for Pemex, of which Peso 211.5 billion will be for capital expenditures.

The $22.75 billion slated for Pemex in 2025 is not only 7.5% lower than what the company was to receive in 2024, it also comes with expectations of slightly higher crude production; Pemex is expected to produce 11,100 b/d more in 2025 than the projected 1.852 b/d for 2024 as new fields come online.

«The crude estimate is hard to get without higher contribution from new oil fields and more investment,» according to a recent analysis from BBVA Bank of Spain, the largest in Mexico by deposits and assets. Without a profound change in the business model of the company, Pemex will continue to be a burden for the government’s finances in coming years, the bank said.

The limited amount of resources for Pemex has observers concerned the company may be unable to meet its obligations.

«I think Pemex will have a hard year; the cut in its budget will not allow it to do much,» said Oscar Ocampo, head of the energy and environment division at think tank the Mexican Institute for Competitiveness. «In the best case scenario, I see production stabilizing at current levels, but I do not see a change in the trend; the budget is too tight.»

Crude output in Mexico has been declining consistently for decades, with some stabilization in recent years with the help of condensates and private production, data from the National Hydrocarbons Commission, or CNH, shows.

In October, Pemex produced 1.42 million b/d of crude, a new low for the last four decades. Including condensates and the production from private companies, total liquid hydrocarbon production in Mexico stood at 1.78 million b/d in October, the data shows.

The good news about the budget is that the 2025 budget does not assign any valuable resources to the many alternative ventures Pemex management has talked about like green hydrogen or geothermal energy, which would distract the company from its primary area of focus, said Gonzalo Monroy, CEO of consultancy GMEC in Mexico City.

«The bad news is that such limited budget is not enough for all the needs of the company,» Monroy said. «In order to increase production, the investment should be close to what other majors invest, which is close to $20 billion,» he said, warning that with such limited budget crude output will likely decline to around 1.3 million b/d by 2027 and to around 1 million b/d by2030, the end of new President Claudia Sheinbaum’s six-year term.

Olmeca refinery still in question

The lower budget comes as the regulatory environment in the country deteriorates and questions arise regarding the long-term vision of the government in terms of energy.

Of more than two dozen experts consulted with by Commodity Insights regarding the new government’s policies in oil and gas, a wide majority warned that there is a «material risk» that the vast oil and gas resources of the country will remain buried underground forever.

In only a couple of years, countries like Argentina, Guyana and even Venezuela could be producing more crude than Mexico, only because of the bad decisions of a few «ignorant» politicians, said a market participant who decided to participate in the survey anonymously.

«I cannot find the words to express the disgust, and the disappointment at seeing the opportunity Mexico has lost,» the person said.

Pemex’s still-unfinished 340,000 b/d Olmeca refinery, commonly known as Dos Bocas for the port where it is located, will still receive an unspecified amount funding in 2025, according to the budget presented, which observers say confirms market talk that the facility is far from being completed. The original cost of the refinery was said to be around $8 billion. According to observers, however, total costs may be three times that sum and it is still far from being operational despite being inaugurated in July 2022. The refinery was a project of former President Andres Manuel López Obrador, who promised to make Mexico energy independent and to reduce the country’s reliance on imported fuels, mainly from the US.

According to CNH data published Oct. 29, the refinery did not have any runs in September, but did produce a few thousand liters of fuels, mainly coke.

spglobal.com 11 22 2024