Mexico’s 2024 Elections: The Last Clear Window of Opportunity for Mexico's Energy Sector

Let us start by making a quick recap: back in 2013 an energy reform was enacted opening the sector to private investment through bidding rounds with the Federal Government. From the Oil & Gas (O&G) Exploration & Production (E&P) perspective, by mid-2018, approximately 12% of Mexico’s O&G bearing acreage was awarded to operators from all over the world with an average government take of 74%. 

By the end of 2018, a new Federal Government took office and the energy policy changed; no more contracts were awarded, and the ones signed before were heavily scrutinized to ensure that no wrongdoings were made by their predecessors. Not surprisingly, the audits came clean, and the current government has honored those contracts allowing them to operate. 

Since then, and despite COVID interruptions and oil prices plummeting, results from opening the E&P sector have yielded the following benefits for Mexico:

1. $65 billion dollars of approved investment, out of which $30.7 billion have already been invested and have helped local content, Pemex, and the government’s income. 
2. 20 new fields discovered with over 2 billion barrels of 2P reserves.
3. 64,000 jobs created.
4. 95,000 barrels of oil produced per day.

These results are only the beginning as, paradoxically, it will be the next administrations who will be the main beneficiaries of the contracts awarded, as forecasts show that those discoveries will reach their maximum/plateau production until then. 

As 2024 nears, the remaining exploration campaigns from those contracts will end and companies will need to decide what is their next step considering that there are no new bidding rounds. Those with enough commercial materiality within Mexico will probably justify a full-scale development phase, and those unfortunates that did not achieve their commercial success will either search for opportunities in the secondary market, or -simply- leave for other countries where they can continue operating.

From a macro perspective, Mexico now needs to meet the growing demands for energy caused by nearshoring and a growing population. To do so, it relies on unconventional gas from the U.S. where it imports more than 80% of its consumption, most of which is used to power the country’s electricity. Unfortunately, Mexico’s natural gas dependency is projected to grow which makes the government’s push for “energy security” seem oxymoronic. In reality, the Ukraine war has made us rethink energy security in terms of the mix and proximity of resources. In such light, security should be seen through a North American powerhouse lens, and Mexico should be thinking about developing its 60 billion barrels of oil equivalent in prospective resources unassigned and fostering two-way channels with its closest neighbors.

Going past 2024, and despite peak demand outlooks for O&G by 2030, consensus of the world’s production in the next decades starts to look more like a plateau than a peak, and the industry will still need to produce 15% more energy in 2050 than it does today, most of which will come from hydrocarbons. To reach this goal, the world requires new fields as the depletion rates continue to compound. This opens a window of opportunity so that Mexico’s prospective resources do not become stranded.

Now, for Mexico to capitalize on such opportunity, decrease its energy dependency, and use the government take for its own social needs; it needs to do two things. 

First it needs to understand that recognizing the subsoil and fully developing greenfield areas takes time. For instance, the Santo’s field -where most of O&G is produced nowadays in Brazil - took 25 years of drilling 102 dry and subcommercial exploration wells before it finally started reaping results. The same is true for brownfield plays, and the northern side of the Gulf of Mexico is a prime example of how constant exploration and technology advancements continue to unlock resources. More importantly, technology also helps reduce emissions regardless of the productivity of the assets and Pemex can leverage current and future associations to become an industry leader. 

The second thing required is to improve its competitiveness in the global arena. It already has an attractive and proven business model with high ESG standards. Now it should focus on minimizing above-ground risks, shortening the time to reach the first barrel, paying debts on time and opening new areas. 

All of this must be policy driven and Mexico’s 2024 Federal Election marks the last clear window of opportunity as Oil and Gas project lifecycles require decades to mature. It is time to forego political differences and use energy as the boosting force for our country’s future.