Next Oil Domino To Fall? Mexico Becomes A Net Oil Importer

March 29, 2019

While Mexico suffered the bloodiest year of violent deaths in 2018, even bigger trouble may be ahead for the embattled country.  For the first time in more than 50 years, Mexico has become a net importer of oil.  This is undoubtedly bad news for the Mexican Government as it has relied upon its oil revenues to fund a large percentage of its public spending.

And, the majority of these revenues came from just one prolific oil field.  After the discovery of the huge Cantarell Oil Field in the Gulf of Mexico in 1976, Mexico’s oil production surged from 894,000 barrels per day to a peak of 3.8 million barrels per day (mbd) in 2004.  That year, Mexico’s net oil exports exceeded 1.8 mbd.

Unfortunately, the downturn of Mexico’s oil production was also due to the peak and decline of the Cantarell Oil Field, which topped out at 2.1 mbd in 2004 and is now below 135,000 barrels per day:

With the rapid decline in Cantarell’s oil production, Mexico’s net oil exports also plummeted from 1.8 mbd in 2004 to only 314,000 barrels per day in 2017.  However, the situation for Mexico’s net oil exports continued to deteriorate in 2018 as its domestic oil supply fell to a new low at the end of the year.

According to several sources, the BP 2018 Statistical Review, IEA’s OMR Reports, and the EIA’s data on World Oil Production, Mexico became a net oil importer in November 2018:

I find it strange that this has not yet been mentioned in the news as it is a very critical factor for the future of Mexico.  Now, I would like to qualify that the data I am using is accurate.  I found Mexico’s total petroleum production and consumption data from the EIA, the U.S. Energy Information Agency’s World Oil Production Browser, the IEA’s, the International Energy Agency OMR Reports, and BP’s 2018  Statistical Review.

In just a little more than a year, Mexico’s net oil exports fell from 314,000 barrels per day to net imports of 90,000 barrels per day in December 2018.  This next chart shows Mexico’s total oil supply versus consumption for each month in 2018:

Of course, we don’t know if Mexico will be able to increase production, but if we consider the disaster that is taking place at PEMEX, the country’s national oil company, I highly doubt domestic oil production will recover.  Why?  Well, let’s just say, PEMEX is on the verge of bankruptcy as the company published two troubling signs in its Q4 2018 Financial Report:

  1. Falling Oil Production

  2. Rising Long-Term Debt

  3.  

According to PEMEX’s Q4 2018  Report, oil production fell from 1.90 mbd Q4 2017 to 1.76 mbd in Q4 2018. These figures are for oil production only and do not include NGPL (natural gas plant liquids) and refining gains.  Which is why it doesn’t add up to the 1.94 mbd for December 2018 shown in the chart above.

Regardless, oil production continues to decline at PEMEX while it’s long-term debt reached a new record high of $96 billion last year:

So, even with all the additional capital expenditures, (shown by the massive increase in long-term debt), PEMEX was not able to prevent the inevitable decline of its domestic oil production.  What happens to PEMEX when oil production really starts to decline?

Sadly, as domestic oil supply continues to decline, the Mexican Government will have lower oil revenues to support its public spending.  I believe Mexico is likely one of the next OIL DOMINOS to fall… and it won’t be pretty.

I will be doing a more detailed update on PEMEX’s financial information when they release their next quarterly report.

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