Mexican national oil company Petróleos Mexicanos (Pemex) reported a decline in dry natural gas output from its processing centers but an increase in fuel oil production from its refineries in February.

Pemex gas output

Dry natural gas production averaged 2.08 Bcf/d for the month, down from 2.18 Bcf/d in January and 2.19 Bcf/d in February 2020.

Fuel oil output rose month/month for a third straight time to average 248,100 b/d, well above the 2020 full-year average of 176,000 b/d.

A recently passed law in the power sector has been criticized as an attempt to ensure that fuel oil produced by Pemex is purchased and burned by state power utility Comisión Federal de Electricidad (CFE). 

Mexico’s total natural gas production, meanwhile, averaged 3.8 Bcf/d in February, compared to 3.84 Bcf/d in February 2020, according to the latest figures from upstream regulator Comisión Nacional de Hidrocarburos (CNH).

Pemex supplied 3.6 Bcf/d of the total, versus 3.61 Bcf/d in the year-ago month, CNH data show. Pemex consumes a portion of its own natural gas production, explaining the discrepancy between total output and the amount produced from its processing centers.

Private sector-operated production totaled 200.2 MMcf/d, down from 237 MMcf/d in the year-ago month, according to CNH.

Mexico’s total crude oil production averaged 1.67 million b/d in February, down from 1.73 million b/d, CNH said. Pemex oil output fell to 1.61 million b/d from 1.68 million b/d, while private sector production rose to 51,958 b/d from 47,979 b/d.

Mexico’s oil and gas trade association Amexhi highlighted last week that the private exploration and production (E&P) sector has invested nearly $16 billion to date in the country as a result of upstream contracts awarded through Mexico’s 2013-2014 energy reform, and that CNH has approved more than $41 billion worth of exploration and development plans.

President Andrés Manuel López Obrador has halted the awarding of new contracts in a bid to “rescue” the heavily indebted Pemex and ensure the “sovereignty” of Mexican energy production.

“Amexhi agrees with the government of Mexico in its objectives to assure energy sovereignty and the supply of hydrocarbons to benefit Mexican society,” Amexhi said. “We maintain that one of the vehicles to achieve these goals is the participation of the domestic and international private sector via the hydrocarbon exploration and extraction contracts of which the Mexican state is a partner.”

The “tangible benefits” of these investments so far include a 2020 average of 14,150 direct jobs, 10 discoveries, and a 39% increase in Mexico’s 3P (proved, probable and possible) hydrocarbon reserves, Amexhi said.

The most high-profile discovery is the Zama deposit found in 2017 at offshore Block 7 by a consortium led by Houston-based operator Talos Energy Inc.

Final investment decision on the project has been delayed by uncertainty over the final equity split and operatorship of the discovery, which straddles Block 7 and a neighboring Pemex tract.

Since the Block 7 consortium and Pemex did not reach final unitization and unit operating agreement (UUOA) by the deadline last Thursday (May 25), Energy ministry Sener is now required to propose finalized UUOA terms.

Talos CEO Timothy Duncan said that, “significant progress in reaching a common understanding has been largely achieved,” and that, “we are confident we can achieve a positive outcome for all parties.”

López Obrador said Tuesday that his government will respect oil and gas contracts awarded under the previous government, but that, “we will not award new concessions” for producing oil “and we will continue protecting Pemex” in order to preserve its market share in the domestic fuels market.

He also said that Mexico will not produce more than 2 million b/d of oil, a far cry from his original goal of 2.6 million b/d by 2024, and that all production will be refined domestically.

The practice of exporting crude and importing gasoline will end, he said. 

The president on Friday also sent a bill to congress to amend the national hydrocarbons law and give the state more leeway to grant and revoke permits in the oil and gas sector.

The proposed legislation prompted an immediate outcry from the local energy industry. Mexican fuel sellers trade group Onexpo Nacional said the bill contained “elements that contradict principles and rules established by the constitution over the participation of the private sector in the oil industry.”