Overview
Mexico is one of the largest oil producers in the world (1.9 million barrels produced daily in 2020), and the fourth-largest in the Americas after the United States, Canada, and Brazil. In 2020, Mexico ranked 13th globally in crude oil production, 21st in crude oil reserves, 16th in refined capacity, and 5th in logistics infrastructure. In 2020, the United States imported over 240 million barrels of Mexico’s heavy crude and exported over 1 million barrels per day of refined petroleum products to Mexico, the top foreign purchaser of U.S. refined petroleum products (more than 70 percent of Mexico’s domestic gasoline, diesel, natural gas, and jet fuel consumption). Oil is a crucial component of Mexico’s economy and earnings from the oil industry accounted for around 58 percent of total government revenues in 2020.
Significant oil reserves have been documented in Mexico, and efforts to upgrade existing logistics infrastructure will likely 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)
2018 | 2019 | 2020 | 2021 (Estimated) | |
Total Local Production | 2.10 | 1.85 | 1.87 | 1.89 |
Total Exports | 2.05 | 1.84 | 1.85 | 1.88 |
Total Imports | 7.03 | 6.32 | 6.38 | 6.47 |
Imports from the U.S. | 4.92 | 4.32 | 4.49 | 4.66 |
Total Market Size* | 7.08 | 6.33 | 6.40 | 6.48 |
Exchange Rates | 19.22 | 19.26 | 20.00 | 21.00* |
*Total market size = (total local production + imports) – exports
Source: Secretariat of Economy, interviews and information from officials of Petróleos Mexicanos (Pemex), the Secretariat of Energy (SENER), and National Hydrocarbons Commission (CNH), ONEXPO, Mexican Natural Gas Association (AMGN), College of Petroleum Engineers, Mexican Petroleum Institute (PMI) contractors and importers. .
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 has been skeptical of private investment in the energy sector, suspended pending upstream bid rounds upon taking power in December 2018 and has not announced plans to restart the auctions.
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 Mexican Petroleum (Petróleos Mexicanos or Pemex). In April 2021, the Mexican Congress modified the Hydrocarbons Law to give the Mexican Government broader powers to review and suspend existing import, commercialization, and distribution permits for all hydrocarbons. Moreover, the Congress removed from the Energy Regulatory Commission (Comisión Reguladora de Energía or CRE) the power to enforce asymmetric regulation in the market, including the regulation of “Firsthand Sales” of Pemex products to competitors. Following the publication of the revised Law in Mexico’s Official Gazette in early May, a federal judge granted a provisional suspension of the Law, in response to multiple injunctions filed.
Recent changes to the General Rules of Exterior Trade, which entered into force on June 12, 2021 prohibit private companies from importing and exporting hydrocarbons from a different place than authorized, thus significantly restricting the options for the private sector to import petrochemicals and hydrocarbons into Mexico, also significantly reducing the capacity of private companies to use existing or developing import and/or export infrastructure.
The Mexican Government has repeatedly emphasized its efforts to strengthen Pemex. In February 2021, for example, Mexico granted new fiscal support worth USD 3.5 billion to strengthen the oil company’s finances. Completion of a new USD 8 billion refinery at the Port of Dos Bocas in the State of Tabasco, started in 2019, and upgrading six existing refineries remain top priorities for Pemex and the Mexican Government.
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 December 2020, PPI had over 9,000 registered suppliers, over 70 percent of which were U.S. firms. Pemex’s 2020 budget totaled USD 26.3 billion and will increase to USD 30 billion in 2021.
A number of private sector oil and gas contractors that were awarded land, shallow, and deep water projects contracts from 2015 to 2018 began to implement their investment plans in 2021 including: BPH, BP, Shell, Murphy Energy, Chevron, ExxonMobil, Fieldwood, Talos, Diavaz, Grupo R, INPEX, Total, Premier Oil, Petrobal, Hunt, Grupo Mexico, Jaguar, Petrofac, Lukoil, China Offshore Oil Corporation and Hokchi Energy. These companies will invest an estimated USD 18 billion from 2021 to 2024 to purchase seismic services, exploration, drilling and extraction equipment, including platforms and related services for 794 wells.
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 and will continue to do so over the next few years. After PEMEX and Talos failed to reach an agreement on who would operate their shared Zama field, SENER Secretary Rocio Nahle announced July 2, 2021that PEMEX would be the operator. This announcement raised concerns that other private companies could face similar issues.
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. The CRE is responsible for granting permits for importation, commercialization, transportation, and storage of crude oil, gasoline, diesel, lubricants, and new gasoline stations. ASEA is responsible for approval of 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 2016 and 2017, SENER awarded deep water exploration blocks to Equinor, BP, Shell, 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 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 increase by 1.5 percent from 2020 to 2021, with a four 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 CNH 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 the major oil companies that 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 investment plan for 2021-2025 includes 399 new exploration, extraction, and production projects in shallow waters, deep water, and onshore projects in the states of Tamaulipas, Veracruz, Tabasco, and Campeche. This includes the upgrading of 25 platforms, the installation of pipelines for the Trans-Isthmus Corridor (300 kilometers from Coatzacoalcos Port, Veracruz to Salina Cruz Port, Oaxaca), and eight interconnections to the existing shallow water platforms in the Gulf of Mexico. These significant projects will create new opportunities for U.S. suppliers of relevant equipment, technologies, and services.
The opening of the upstream oil and gas market will provide opportunities to sell technology and services to private contractors and Pemex. These opportunities include: upgrading six existing Pemex refineries, upgrading 77 Pemex storage facilities for crude oil, gasoline, diesel, and lubricant, and modernizing over 5,000 gasoline stations. Current Pemex 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.
Resources
- Secretariat of Energy (SENER)
- Energy Regulatory Commission (CRE)
- Petróleos Mexicanos (Pemex)
- College of Petroleum Engineers of Mexico (CIPM)
- Pemex Procurement International (PPI)
- Mexican National Gas Association (AMGN)
- Centro Nacional de Gas (CENAGAS)
- Mexican Association of Hydrocarbons (AMEXHI)
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
