Page 1 - Mexico Oil and Gas Report Q3 2012 Published: July 2012

No. of Pages: 82

Price: US $ 1175

We expect Mexico to slow the rate of production decline that has plagued its vital oil sector over the short term, but that the downward trend will persist without new discoveries or further sector reform – potentially seeing the country turn into a net oil importer by the end of the decade. The Calderon administration has had some success pushing through liberalisation measures but has not gone far enough. With the favoured candidate in the upcoming 2012 elections, Enrique Peña Nieto, advocating further reforms, the elections could prove a crucial turning point for the sector. BMI forecasts that oil and liquids production will fall slightly from 2.96mn barrels per day (b/d) in 2011 to 2.95mn b/d 2012. Oil and liquids will continue to decline from 2012, falling to about 2.72mn b/d in 2016, a fall of about 8% from 2011. Oil consumption over the same period is expected to rise at a moderate rate, reaching 2.25mn b/d by 2016, implying net exports of 467,000b/d. Gas output is forecast to remain essentially flat over the coming years. Gas production is projected to expand from 46.80bn cubic metres (bcm) in 2011 to 49.41bcm in 2016. This will do little to reduce import needs, however, as consumption is forecasted to rise rapidly from 61.29bcm in 2011 to 76.62bcm in 2016, implying an import requirement of nearly 30.00bcm by 2016, about double the 2011 import requirement. The long-term forecast for Mexico’s oil sector is dire. Oil production is seen continuing its downward spiral, falling to under 2.50mn b/d in 2019 before reaching 2.30mn b/d in 2021. Meanwhile, a healthy economic growth outlook is expected to see consumption rise by between 1-3% per year. That trend sees consumption exceed production for the first time in 2021, with an implied net import requirement of more than 113,000b/d for that year. This would mark a dramatic turnaround for the country considering that exports peaked at 1.80mn b/d in 2003 and the country was exporting more than 1.00mn b/d as recently as 2008. There is still plenty of time for Mexico to alter this long-term trend, but without more urgency in oil sector reform and new exploration efforts aimed at tapping deepwater Gulf of Mexico reserves the country faces the loss of crucial oil export revenues. Unless the government introduces a radical shift in energy policy, we expect state-owned Petróleos Mexicanos (Pemex) to retain full responsibility for oil production, with limited international oil company (IOC) involvement. Mexico holds ninth place, behind Ecuador, in BMI’s Risk/Reward Ratings (RRRs), which combine upstream and downstream scores. Despite being one of the region’s largest oil producers, the country now sits in ninth place in BMI’s updated upstream ratings. Although the absolute resource base may be large, the output growth outlook is poor, reserves-to-production ratios (RPR) are low, state ownership of oil assets is absolute and country risk is relatively high. Mexico ranks fourth in BMI’s downstream ratings, reflecting its high levels of oil and gas consumption, refining capacity and moderate country risk, plus low levels of projected oil and gas demand growth. Colombia is just two points behind Mexico and could mount a near-term challenge. Nonetheless, Mexico is one market that could move up the rankings

Mexico Oil and Gas Industry Table Of contents BMI Industry View 5 SWOT Analysis . 7 Mexico Oil and Gas SWOT 7 Global Energy Market Outlook 8 Regional Energy Market Outlook 15 Mexico Energy Market Overview 19 Industry Forecast Scenario ... 23 Oil And Gas Reserves . 23 Oil Supply And Demand 28 Gas Supply And Demand .. 30 LNG 31 Refining And Oil Products Trade 32 Revenues/Import Costs 33 Oil And Gas Infrastructure 34 Oil Refineries 34 Service Stations . 36 Oil Storage Facilities .. 36 Oil Terminals/Ports 36 Oil Pipelines . 37 LNG Terminals . 37 Gas Pipelines 39 Regional and Country Risk/Reward Ratings . 41 Mexico Upstream Rating – Overview .. 46 Mexico Upstream Rating – Rewards 46 Mexico Upstream Rating – Risks . 46 Mexico Downstream Rating – Overview 46 Mexico Downstream Rating – Rewards . 47 Mexico Downstream Rating – Risks . 47 Competitive Landscape . 48 Executive Summary . 48 Overview/State Role 49 Licensing and Regulation 50 Government Policy 52 International Energy Relations .. 54 Company Monitor . 56 Petróleos Mexicanos (Pemex) 56 Repsol YPF Mexico 61 Shell – Summary 63 Chevron – Summary. 63 Petróleo Brasileiro – Summary .. 63 Total – Summary 63 Sinopec – Summary 63 Others – Summary . 64 Service Companies . 64 Methodology And Risks To Forecasts . 73 Glossary Of Terms ... 74 Oil And Gas Risk/Reward Ratings Methodology 76 Ratings Overview 76 Indicators 77 BMI Methodology . 80 How We Generate Our Industry Forecasts . 80

Energy Industry 80 Cross checks . 81 Sources ... 81 - Mexico Oil and Gas Report Q3 2012  

We expect Mexico to slow the rate of production decline that has plagued its vital oil sector over the short term, but that the downward tre...

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