Mexico - Commercial Guide
Oil and Gas

This is a best prospect industry sector for this country.  Includes a market overview and trade data.

Last published date: 2020-08-18

The oil and gas sector is a best prospect industry sector for Mexico. This section includes a market overview and trade data on the sector.
 

Overview
Mexico is one of the largest oil producers in the world (with 1.67 million barrels produced daily in 2019), and the fourth-largest in the Americas after the United States, Canada, and Brazil. In 2019, the United States imported over 218 million barrels of Mexico’s heavy crude and exported over 1.2 million barrels of refined petroleum products (more than 70 percent of Mexico’s domestic gasoline, diesel and jet fuel consumption) to Mexico. Oil is a crucial component of Mexico's economy and earnings from the oil industry accounted for around 30 percent of total government revenues in 2019.

Significant oil reserves have been documented in Mexico, which will drive private sector investment and offer opportunities for U.S. companies as contractors, sub-contractors or suppliers of equipment and/or technology.

Mexico Upstream Oil and Gas Equipment and Services Market Overview
(Figures in USD billions)

 

2017

2018

2019

2020 (Estimated)

Total Local Production

2.33

2.10

1.85

1.53

Total Exports

2.00

2.05

1.84

1.58

Total Imports

7.01

7.03

6.32

5.37

Imports from the U.S.

4.94

4.92

4.32

3.67

Total Market Size*

7.34

7.08

6.33

5.32

Exchange Rates

18.91

19.22

19.22

20.00

*Total market size = (total local production + imports) – exports
Source: (Mexican) National Bank for International Trade (BANCOMEXT), Secretariat of Economy, Global Trade Atlas, interviews and information from officials from Petróleos Mexicanos (Pemex), the Secretariat of Energy (SENER), and National Hydrocarbons Commission (CNH) Contractors.

Mexican Energy Reform

In December 2013, Mexico amended its constitution to allow both local and foreign private investment into the energy sector for the first time since its nationalization in 1938. The reforms permit international energy companies to operate in Mexico and include provisions for competitive production sharing contracts and licenses. In addition to increasing the demand for technology and technical expertise for the development of upstream deep water and shale oil and gas fields, the energy reform also allows for greater private investment in retail fuel distribution.

At the end of 2018, the Secretariat of Energy (Secretaría de Energía or SENER) completed the revision of the investment plans of the 107 contracts awarded during 2015–2018 to private companies. In 2018 the Agency for Security, Energy and Environment (Agencia de Seguridad, Energía y Ambiente or ASEA) also completed their review of environmental permit and land rights applications. However, the López Obrador Administration, which is skeptical of private investment in the energy sector, suspended pending upstream bid rounds and upon taking power in December 2018 and has not announced plans to restart the auctions. Some of the U.S. companies that were awarded land, shallow- and deep-water projects include Murphy Oil, Chevron, Fieldwood Energy, ExxonMobil and Talos Energy.

While the López Obrador Administration has indicated that it will respect the current legal framework of the energy reform, it has enacted a series of regulatory changes that have negatively impacted private sector participants, particularly in the midstream and downstream sector, to the benefit of parastatal Pemex. In 2019 the government began construction on a new refinery in the Port of Dos Bocas in the State of Tabasco with an USD 8 billion investment.

Pemex’s Structure

Pemex operates through two main divisions: Pemex Exploration and Production and Pemex Industrial Transformation. Pemex Industrial Transformation controls the national gas, refining, and petrochemical businesses and affiliated companies (Drilling, Logistics, Fertilizers, Ethylene, and Cogeneration and Services). Pemex International (PMI), Pemex’s international business development subsidiary, purchases and sells fuel and basic petrochemicals, but not equipment. 

In order to participate as a supplier to Pemex, companies must first complete the registration process at the Pemex Procurement International (PPI) website (www.pemexprocurement.com). Companies that wish to become registered suppliers must submit copies of their articles of incorporation, audited financial statements, and commercial and financial references. As of March 2020, PPI had over 10,000 registered suppliers, over 70 percent of which were U.S. firms. Pemex’s 2020 budget is reported as USD 26.3 billion. 

A number of private sector oil and gas contractors that were awarded land, shallow, and deep water projects contracts from 2015 to 2018 expect to start implementing their investment plans in 2021. These include BPH, BP, Murphy Energy, Chevron, Diavaz, ExxonMobil Grupo R, INPEX, Total, Premier Oil, Petrobal, Hunt, Grupo Mexico, Jaguar, Petrofac, Lukoil, and Hukchi Energy. These companies received approval of their investment plans in 2019 from SENER. The companies will invest more than USD 18 billion from 2021 to 2024 to purchase seismic services, exploration, drilling and extraction equipment, including platforms and related services. 

Private sector oil and gas contractors partnering with Pemex in the farmouts (production sharing contracts) have faced difficulties, including payment delays for contractors and suppliers participating in upgrading Pemex infrastructure. Payment delays to private companies, including U.S. firms, extend to hundreds of millions of dollars, and some U.S. companies anticipate international arbitration to recover these funds.

Private companies that were awarded contracts in upstream auctions during the previous administration are beginning to make substantial investments in exploration, drilling, and production activities over the next few years. That said, drawn-out unionization negotiations between Pemex and the Talos Energy-led private consortium has raised concerns with other private companies that could face similar issues. The state oil company has asserted its view that it should operate the Talos consortium’s massive 2017 Zama oil discovery, which straddles an adjacent Pemex block. 

Mexican Regulatory Agencies

The National Hydrocarbons Commission (Comisión Nacional de Hidrocarburos or CNH) is responsible for regulating, overseeing, and evaluating all hydrocarbon exploration and production activities in the country for private oil and gas companies as well as for Pemex. The Energy Regulatory Commission (Comisión Reguladora de Energía or CRE) is responsible for granting permits for importation, commercialization, transportation, and storage of crude oil, gasoline, diesel, lubricants and new gasoline stations. ASEA approves the environmental and land use permits before exploration, drilling, and extraction activities can begin, including the construction of new gasoline stations and natural gas infrastructure. SENER is responsible for processing social impact assessments, which are mandatory for most major upstream, midstream, and downstream activities including the construction and operation of pipelines, storage facilities and refineries, as well as retailing and distribution. Private sector participants across the sector have expressed concerns that CRE, ASEA, and SENER permits have been chronically delayed, in some cases by over a year, as part of a broader Mexican government strategy to limit private investment and favor Pemex.

Production Sharing Contracts: Pemex and Round Zero Farmouts
A “Round Zero” hydrocarbon resource asset allocation process was completed in March 2014 when Pemex presented to SENER the areas in which they intended to retain exclusive rights to production or to develop production at a future date. Round Zero farmouts allowed Pemex to maintain control of 83 percent of reserves (1P, 2P, 3P) for current and future investment and development. Under the energy reforms, Pemex can partner with other private companies in developing these resources.

Round Zero included the migration of contracts that Pemex formalized in 2013 with private companies for crude oil and gas mature fields exploration and production. In December of 2016 and in 2017, SENER awarded deep water exploration blocks to Statoil, PC Carigali, Murphy Energy, China National Offshore Oil, Chevron, and ExxonMobil. Under the first Farm Out project, CNH-A1-TRION/2016, the award was granted to Pemex in an alliance with BHP Billiton.

Gas Market Overview
Mexico has an estimated 17 trillion cubic feet (Tcf) of proven natural gas reserves. Natural gas is increasingly replacing oil as a feedstock in power generation. However, higher levels of natural gas consumption will likely depend on more pipeline imports from the United States or liquefied natural gas (LNG) imports from other countries. Mexico has an estimated 545 Tcf of technically recoverable shale gas resources, the sixth-largest in the world. The true potential of accessing and developing shale gas in Mexico is hindered by low availability of the required technology, the accessibility of low cost U.S. natural gas, and a presidential proclamation barring the practice. However, Mexico has encouraged the increase of domestic natural gas production by inviting private companies to bid on new natural gas pipelines and storage facilities for imported U.S. natural gas. 

Leading Sub-Sectors
The demand for imported upstream oil and gas equipment and services is expected to decrease by 15 percent from 2019 to 2020, with a corresponding 15 percent decrease in U.S exports, given COVID-19 impacts on GDP and low oil prices. Private oil and gas contractors will drive market growth in order to comply with the award schedules set by CRE for shallow water, onshore, deep water, and heavy oil and gas projects. 
In the next few years, there will be opportunities in the upstream sub-sector for U.S. companies to sell technology and services to private companies such as Chevron, ExxonMobil, Marathon Oil, Murphy, Premier Oil, and third country companies such as BHP Billiton, BP Exploration, Ecopetrol, Eni International, Japan Oil, Japan Petroleum, and Pacific Rubiales, which have bid on the shallow water tenders. Equipment needed includes derricks for oil and gas fields, drilling equipment for oil and gas fields, Christmas tree assemblies, drilling rigs, oil and gas field drilling machinery and equipment, as well as engineering services.

Opportunities
Pemex’s 2020–2024 investment plan in shallow waters for 2021 implementation, includes the development of 16 new oil and gas fields; construction of 13 platforms; installing 14 pipelines (175 kilometers); and eight interconnections to the existing shallow water platforms in the Gulf of Mexico.

Onshore projects include constructing three new platforms and drilling in existing fields; installing 13 new pipelines (88 kilometers long); upgrading six refineries; and building a new refinery at the Port of Dos Bocas in the State of Tabasco. These significant projects will create new opportunities for U.S. suppliers of relevant equipment, technologies, and services. Still, Pemex has faced greater financial pressure in recent years and has struggled to pay international and domestic equipment and service providers in a timely fashion. Reports of firms pursuing legal remedies or laying off staff due to Pemex payment delays are commonplace.

The opening of the upstream oil and gas market will provide opportunities to sell technology and services to private contractors and Pemex. The projects include upgrading Pemex' six existing refineries; building storage facilities for crude oil, gasoline, diesel, and lubricant; and facilitating modernization of over 8,000 gasoline stations. Current tenders require a Mexican local content of 25 percent when there is local production, increasing to 35 percent by the end of 2025. When there is no local production, the local content requirement may be waived. U.S. suppliers and investors are encouraged to monitor progress and seek out opportunities that may include joint ventures, production sharing contracts, and/or concessions.

Equipment and services with greater demand include high pressure/high volume pumps; hydraulic submersible pumps; filter pots; Baur pipe; auxiliary fuel tanks; seismic services; trenchers; plows; boring tunneling machinery; mud mixing systems; mud recycling systems; vacuum trucks; pile drillers; operating separators; desilting equipment; and field gathering lines.

Web Resources

Secretariat of Energy (SENER)

www.energia.gob.mx

Energy Regulatory Commission (CRE)

www.cre.gob.mx

Petróleos Mexicanos (Pemex)

www.pemex.com

College of Petroleum Engineers of Mexico (CIPM)

www.cipm.org.mx

Pemex Procurement International

www.pemexprocurement.com

Mexican National Gas Association (AMGN)

http://www.amgn.org.mx

Centro Nacional de Gas (CENAGAS)

http://www.cenagas.gob.mx

 

Events

Offshore Technology Conference (OTC), May 3-5, 2021, Houston, Texas

Contacts
For more information on the oil and gas sector in Mexico, please contact:

Francisco Cerón
Commercial Specialist
U.S. Commercial Service—Mexico City
Tel.: +52 (55) 5080-2000 ext. 5211
Francisco.Ceron@trade.gov