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Thursday, November 26, 2020

Mexico’s major oil find could strangle foreign investment for years: analyst

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(S&P Global Platts) Pemex’s massive new oil discovery at the Quesqui field might paradoxically prove to be the worst news of 2019 for Mexico’s energy sector, as it will be used to justify a shunning of badly needed private investment for years to come, veteran Mexico energy watcher Duncan Wood said Wednesday.

The onshore find, announced Friday, in the southeastern Tabasco state holds 3P reserve potential of 500 million barrels, according to state-run Pemex, which plans to drill 11 new wells with total production of 69,000 b/d next year.

Wood, director of the Wilson Center’s Mexico Institute, said the Pemex discovery allows President Andres Manuel Lopez Obrador to dig in on his campaign promise to make the country self-sufficient in energy, with Pemex meeting rapidly rising energy needs.

Lopez Obrador’s views “have been confirmed in his own head that Mexico doesn’t need foreign capital, it doesn’t need foreign technology,” Wood added. “I think that’s a very powerful factor in determining how the investment climate is going to go, moving ahead.”

Wood said he doubts “very much” that Pemex can achieve the 69,000 b/d output target next year.

“If Pemex is able to at least hold the line on production, if [state-owned utility] CFE is able to provide electricity at least for public service, I think they will limp through this administration and there will be a very strangulated investment climate,” Wood said.

INFRASTRUCTURE NEEDS

Nelly Molina, CFO of Mexican utility IEnova owned by Sempra Energy, said at the same event that the country’s energy sector needs massive private investment and new infrastructure.

She said next year’s federal budget will be maxed out by the administration’s priorities around building the 340,000 b/d Dos Bocas refinery and rehabilitating existing refining capacity.

“There’s nothing, absolutely, for these other types of segments,” she said, referring to natural gas, electricity and renewable projects.

On Pemex’s persistent problem of fuel theft, Wood said Lopez Obrador appears to have cracked down on corruption and managed to reduce the biggest fuel heists. But Wood said the number of smaller thefts appears to have increased.

“They’ve sorted out some of the major thefts that were coming straight out of the refineries,” Wood said, adding that Lopez Obrador appears “quite serious about trying to root out corruption within Pemex.”

“These are people who have been there for a long time, and he wants to make sure they’re no longer benefiting from and damaging what he sees as the jewel in the crown, which is Pemex. That’s a success. It’s not a complete success, but it is a success.”

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