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Analysis

PEMEX Natural Gas Strategy

Wed, 01/25/2012 - 11:34

Pemex Exploration and Production (PEP) expects to produce approximately 6.2% less gas in 2012 than it did in 2011. In Pemex’s first Operative Quarterly Programme (POT) of 2012, the company estimated average gas production (with nitrogen) for this year to be 6.19 Bcf/ day, whereas the NOC produced 6.59 Bcf/day in 2011. At the same time, PEP plans to ramp up its oil production. The estimated average oil production for 2012 is 2.6 million bbl/day, compared to the 2011 production figure of 2.55 million bbl/day.

In general, natural gas production increased consistently until peaking in 2009 at 7.03 Bcf/day. Since then, production has dwindled, falling by 6.2% between 2009 and 2011. Production in the dierent regions has declined largely in the same way, although the northern region shows the biggest percentage decrease. Broken down by regions, natural gas production between 2010 and 2011 declined 5.1% in the marine regions, 4.1% in the southern region, and 8.5% in the northern region. However, Pemex’s 2012-2016 business plan shows that the company expects a production increase in the medium-term.

Parallel to production decreases, investment in nonassociated gas projects also declined in the last couple years, dropping 13% between 2010 to 2011, according to CNH figures. This is partly due to the fact that, in the same time period, PEP’s total annual investment in such projects decreased by 5.35%. In 2012, PEP assigned these projects MX$65.43 billion (US$5.11 billion), which represents 26.26% of Pemex’s total assigned investment for exploration, development and exploitation of its oil and gas fields. This is roughly the same percentage as in 2011, during which investment in non-associated gas represented 26.35% of the total investment. In 2010, however, non-associated gas investment was 28.7% of Pemex’s total annual investment.

Within its investment plan for non-associated gas projects in 2012, Pemex plans to allot the biggest budget to development, MX$28.95 billion (US$2.26 billion), which represents 44% of the non-associated gas budget. The second-largest budget is planned for production with MX$24.71 billion (US$1.93 billion), while 18% of the non-associated gas budget would be allocated to exploration. These are roughly the same proportions that were assigned to the dierent activities last year. In November 2011, there were 3,183 wells producing non-associated gas. In November 2010, the number of non-associated gas producing wells was 3,031. Pemex plans to drill at least 20 exploratory wells by 2014 in order to evaluate shale gas fields’ potential.

There is a clear dierentiation between the profitability of wet and dry gas, and as a result Pemex is now focusing on wet gas production from its overall gas portfolio. Gustavo Hernández García, Subdirector of Planning and Evaluation at PEP, explains that “prices for liquids are currently a little higher than they used to be, and higher than prices for dry gas. As a result, we are focusing on our wet gas assets in areas like the Burgos basin, because this makes the most sense for the foreseeable future. It’s not so profitable to invest in dry gas with the price levels we have right now. Burgos has some parts that are wet gas and other parts that are dry gas. We are making the decision to reduce the investment in dry gas to a minimum.”

Pemex also plans to further reduce its gas flaring. During 2012, it expects to emit an average of 125 Mcf/day gas into the atmosphere, of which 103 Mcf would be natural gas and the rest nitrogen. This compares to a total average of 350 Mcf/day in 2011 and of 600 Mcf/day in 2010, according to CNH figures.