OPEC’s Decision to Hit Mexican Public Finances

OPEC’s decision to cut production by 2MMb/d is set to have a direct impact on Mexico’s economy. Meanwhile, industry decision-makers met to discuss the future of Mexico’s oil and gas reserves and how to best exploit them. 

Here is this week in oil and gas!

Mexico

Public Finances to Take a Hit Following OPEC Cut

The decision made by OPEC+ members to cut crude oil production by 2MMb/d, the largest adjustment since 2020, will limit Mexico's oil production capacity and with it the national economy. In recent days, OPEC+ members announced a cut in oil production in an attempt to halt the fall in crude oil prices caused by a weak global economy. This cut will come into effect in November and will remain in place until the end of 2023. The director of Ursus Energy, Santiago Arroyo, explained in an interview with Energía A Debate that one of the consequences this measure will have for Mexico is to limit oil revenues, which are the second most important type of income for the government, after tax collection.

Magna Gasoline Prices Down For First Time In Almost A Year

Magna gasoline prices reported their first decrease since November 2021, falling 0.56 percent monthly in September, according to data from INEGI. In its inflation report at the close of the ninth month of the year, the agency detailed that Premium gasoline registered a 0.04 percent monthly inflation rate, the best level in 10 months. LP domestic gas, meanwhile, used by 70 percent of households in the country, also reported a monthly reduction of 3 percent, resulting in five months with a downward trend. In the same month, residential natural gas increased 0.21 percent. Despite this increase, the rise was lower than last month's 1.41 percent. The federal government has made efforts to curb the increase in fuel prices, such as the subsidy strategy applied to the Special Tax on Production and Services (STPS), which has represented a cost to the public treasury of MX$307 billion (US$15.289 billion), according to the Tax Administration Service (SAT). 

Fuel Oil Production Reaches Highest Rate in Five Years

PEMEX’s fuel oil production from August to September was the highest recorded in the last five years, according to SENER. Fuel oil inventories at the national level are at their highest since records began, with consumption decreasing and production in the PEMEX-operated National Refining System (SNR) increasing. Stock of the refining byproduct reached 1.015MMb in the last week. The previous five-year peak for September was recorded in 2021, when inventories totaled 912Mb. This comes as demand reaches its lowest level since SENER began recording this in 2018. 

Mexico To Buy Back Madero Refinery Asset

The hydrogen plant located in the Francisco I. Madero refinery was sold in 2018 for US$32.5 million dollars to the German company Linde, under the administration of Enrique Peña Nieto. Now, the government of Andrés Manuel López Obrador is looking to recover it. "I take this opportunity to tell those who acquired those plants that were sold in the last few months of the previous government, that we are not expropriating them or opening an investigation, whether it was legal or not. We are telling them that an appraisal will be made and we will buy them back, because such business is not continuing".

Greater Investment in Unconventionals and Deepwater Needed

On Thursday, Oct. 6, experts, analysts and top decision-makers from Mexico’s oil and gas industry met for the second day of the World Energy Council's Combined Congress of Mexican Energy Associations. Industry insiders agreed that more investment in the development of unconventional and deepwater resources is needed in the next decade if Mexico is to meet its 2030 energy demand. Schreiner Parker, Senior Vice President and Head of Latin America, Rystad Energy, noted Mexico is unique in the world as one of the countries that boasts both shale gas and deepwater hydrocarbon reserves, two sectors expected to play a bigger role in meeting the energy demand this next decade. On deepwater potential in the wider region, “52 percent of global deepwater discoveries over the last two decades were made in the Latin American and Caribbean region,” Parker noted.

International

Italy Might Face Gas Shortage Without New LNG Terminal

Without a new regasification terminal, Italy might face a shortage of 5-6Bcf of natural gas during winter time. Italy is planning a floating liquefied natural gas (LNG) terminal in Piombino, Tuscany, based on a floating storage and regasification unit (FSRU) expected to be operational by the end of March 2023. The project needs to be greenlighted by the end of the month to add capacity in early 2023.
 

Goldman Sachs Deems OPEC+ Cuts Bullish

OPEC+’s agreement to a 2MMb/d reduction in quotas starting in November has been dubbed “surprisingly bullish” by Goldman Sachs. If sustained through Dec. 23 next year, OPEC+’s cuts would amount to US$25 per barrel upside from Goldman Sachs’ previous 2023 $107.5/b Brent forecast, “with potential for price spikes even higher should inventories fully deplete, requiring demand destruction as a last resort,” Goldman Sachs outlined.