PEMEX Production Declines; Energy Partnerships Loom

In November, PEMEX's crude oil production experienced its highest annual decline in over five years, marking 24 consecutive months of year-on-year decreases, as reported by El Economista. The company's crude extraction dropped by 10.2% to 1.407MMb/d, the steepest decline since April 2019. This volume is the lowest since May 1979, which recorded 1.401MMb/d.

PEMEX's total liquid hydrocarbon production, which includes crude oil and condensates, also saw a decline. Condensate production fell by 8.1% to 267Mb/d, the lowest level since December 2022. Consequently, the total production of liquid hydrocarbons decreased by 9.9% to 1.673MMb/d, the lowest since July 2020. From January to November, liquid hydrocarbon production dropped by 5.6% to 1.772MMb/d, the lowest since 2021 for the same period.

The production decline occurs amid a complicated year due to PEMEX's delays in paying its suppliers, which include several exploration and production service providers. Some suppliers have paused or reduced their activities due to non-payment. As of 3Q24, PEMEX had outstanding accounts payable to suppliers amounting to a record MX$402.874 billion. President Claudia Sheinbaum has stated that the state company will catch up on payments by February through partial payments.

Significant declines were observed in seven out of PEMEX's 11 major production assets, with Cantarell experiencing the largest drop of 12.9% to 143Mb/d. Other significant declines were noted in the Tabasco coast (12.2% to 288Mb/d), Bellota-Juco (10.6% to 339Mb/d), and Ku-Maloob-Zaap (4.4% to 589Mb/d).

Given this declining production, PEMEX has recalibrated its production targets. For the current administration under President Claudia Sheinbaum, the national production target is set at 1.8MMb/d, which includes production from private operators. According to the National Hydrocarbons and Natural Gas Strategy (ENSHGN), PEMEX aims for an average production of 1.702MMb/d from 2025 to 2030, with private operators averaging 99.333Mb/d, peaking at 112Mb/d in 2026.

Strategic fields such as Zama and Trion, where PEMEX has partnerships with private companies, will receive priority, along with mixed (public-private) projects aimed at increasing reserves and production, but always under PEMEX's control.

Both the National Hydrocarbons Strategy and the Electricity Strategy, introduced last month by the federal government, advocate for the development of mixed (public-private) projects. However, experts believe there is a need for clarity on these projects and emphasize the importance of risk-sharing between the government and the private sector.

Natural Gas Production Also Declines

Natural gas production in Mexico is dropping to record lows, while imports are peaking according to Bloomberg Línea. Mexico's annual average production of natural gas in October 2024 was 3.804Bcf/d, the lowest since 2018. Meanwhile, imports averaged 6.537Bcf/d in September.

Compared to the previous year, natural gas production has decreased by 11%, whereas imports have increased by 6%. Mexico, a net importer of natural gas, generates 60% of its electricity from this fuel, primarily transported from the United States through pipelines. This heavy reliance on imported gas poses operational risks due to natural phenomena such as winter storms in supplying states like Texas and the lack of strategic storage.

The production decline began in 2023, despite stabilization efforts by the previous administration under President Andrés Manuel López Obrador, which halted a 20-year decline. Factors contributing to the decrease include the depletion of mature fields, declines in new fields like Quesqui, venting, leaks, flaring, and accidents at key sites such as the Ku field since 2021.

Experts Call for Clear Guidelines

Jesús Carrillo, Director of Economics at the Mexican Institute for Competitiveness (IMCO), highlighted that for mixed projects to be appealing to private investors, authorities need to clarify how private entities can participate. According to Carrillo, joint risk-sharing is essential for these projects to attract investments and ensure profitability. He emphasized that if projects are limited to service contracts without shared risk and debt, they would not attract the necessary investments. PEMEX, he noted, cannot afford to finance these projects alone through debt.

In the electricity sector, projects with private participation are planned, with the condition that CFE retains 54% control. For hydrocarbons, projects must maintain "energy sovereignty."

Ana Lilia Moreno, Coordinator of the Competition and Regulation Program, Mexico Evalúa, stressed the need for regulatory certainty for all participants. She pointed out that the previous administration initially promised no changes to the energy sector but gradually introduced administrative and legislative modifications, leading to uncertainty. For successful public-private partnerships, clear rules on risk-sharing and compensation are crucial.

Despite the current administration's preference against public-private partnerships, it is acknowledged that many projects will not proceed without these alliances. Moreno remarked that the energy industry has learned from the past six years not to rely solely on political promises.