Oil Production at 40-Year Low in AMLO’s Mexico

In AMLO’s Mexico, oil production has fallen to 1979 levels.

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Under AMLO’s management of Pemex, oil extraction fell to its worst level in 40 years. (EFE)

 

Since 1979, the state-owned company Mexican Petroleums (Pemex) had not produced as little crude oil as it does now. Instead of opening the Mexican market to the world, the government of Andres Manuel Lopez Obrador (AMLO) insists on closing it and monopolizing it. The result has been disinvestment and now a drop in production.

“Throughout the last decade, Pemex has not been able to generate sufficient resources to finance its operating and investment expenditure, as well as to meet the financial cost of its debt and its fiscal obligations,” says Manuel Molano, director of the Mexican Institute for Competitiveness (IMCO), who affirms that Mexican Petroleums (Pemex) is technically bankrupt.

According to figures from the National Hydrocarbons Commission (CNH), oil production in Mexico has regressed to the level where it was 40 years ago. In October 2019, Pemex extracted 1,616 million barrels of crude a day, a figure it had not dipped to after 1979 when the state oil company produced more than 1,615 million barrels a day.

It should be noted that although the figure is similar in both periods, the numbers indicate contrasting results. The 1979 value was a success, and the 2019 number is a failure. This is because, at the end of the 1970s, Mexico broke the historical production record following the discovery of the Cantarell mega-fields. From there, it continued to climb to its peak with 3.4 million barrels of crude oil per day in 2003.

But since 2009, a decline began. The annual expenses of the Mexican oil company were higher than its income. This led Pemex to incur growing debts, to the point that its financial obligations grew 113% in real terms, from 32.5 billion USD to about 103 billion USD in the last ten years.

In the last decade, oil production has halved from about 3.5 million to 1.7 million barrels per day.

And in 2019, it reached its lowest mark in four decades. The gravest aggravating factor in this collapse would be the lack of funding for infrastructure damaged by overexploitation.

AMLO did not create this situation, but he has failed to overcome it, and things have only got worse.

For economist Jorge Suarez Velez, author of The Next Great Drop in the World Economy (“La próxima gran caída de la economía mundial”), Lopez Obrador is leading Mexico into the abyss. The under-financing of the oil sector has led to a reduction in production. The most visible case is the bidding of the Dos Bocas Refinery that AMLO canceled.

Instead of receiving 8 billion USD through private investment, the president decided to preserve the oil monopoly and use state funds to put Pemex, a bankrupt state-owned company, in charge. So not only did no money enter Mexico, but public spending increased since it will be Mexican citizens who finance it.

To understand the magnitude of extraction, Norway produces an average of 2,089 million barrels of crude oil per day. Mexico reached this figure in January 2014.

Overexploitation damaged the oil field

Mexico’s oil fields suffer from overexploitation that has damaged the oil deposits and impeded the potential of extraction.

Now Akal, part of Cantarell, produces just 45,900 barrels a day, according to figures from the National Hydrocarbons Commission (CNH).

Under the program called “Investment Opportunities in Mature Fields: Increase in the Recovery Factor,” Pemex intends to exploit Akal, where there is enough crude to extract 1,894 million barrels.

In September, Pemex CEO Octavio Romero Oropeza announced that October’s production would be reduced by 32,800 barrels per day for the maintenance of the tanker ‘El señor de Los Mares, as well as two rigs in the Akal field. But the decline was more significant than expected: 50,000 fewer barrels per day.

However, Romero Oropeza announced that by the end of December, production would be above 1.8 million barrels of crude oil, and the year 2020 will commence with that figure. To achieve this, he proposes 20 new allocations under a business model called the Exploration and Extraction Integral Service Contract (CSIEE).

Analysts such as Pablo Medina from Welligence Energy state that “the biggest problem with the CSIEE is that they don’t give liquidity to Pemex as a bonus to the firm. The opportunity cost of having Pemex as the operator is high.”

And the Mexican people will pay for that. Instead of reducing expenses through private investment in the oil industry, AMLO’s policies have demanded that Mexicans credit a bankrupt company: Pemex.

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