Mexican Energy Secretariat Presents 2007-2016 Petroleum Outlook

Text of report by Mexican newspaper El Financiero website on 13 December

[Report by Esther Arzate: "Deepwater Crude Oil Production by 2014"]

The legislators still haven’t decided whether they will allow Mexican Petroleum (Pemex) to form partnerships with other oil companies to explore and exploit hydrocarbon deposits in deep waters, but the Energy Secretariat (Sener) has already estimated that 19,000 barrels of oil per day will be obtained from that type of oilfield in 2014 and as many as 174,000 barrels in the year 2016.

In the 2007-2016 Petroleum Outlook, the secretariat admits that investment funds have not been enough to go into increasingly expensive oilfields, like those in deep waters, since they involve allocating amounts that are “much greater than in deposits offshore or in shallow waters.”

The Sener expects projects in deep waters to begin their production in 2014. These projects are classified using a definition established by Pemex Exploration and Production (PEP), in which projects carried out in water deeper than 500 meters are considered to be deepwater projects. The reason for this definition is that, at that depth, the technology to develop those fields changes significantly.

The part of the Gulf of Mexico Basin with water deeper than 500 meters covers an area of approximately 575,000 sq km. Nine geological areas have been identified there and are divided into three exploratory projects: Gulf of Mexico B, Southern Gulf of Mexico, and the Remote Area.

First Step

The drilling of wells in deep waters began in 2004, in the Gulf of Mexico B project. To date in that project, work has been done in five exploratory wells, with four of them becoming producing wells: Nab-1, a producer of extra heavy oil, and the Noxal-1, Lakach-1, and Lalail-1 wells, which became producers of non-associated gas.

The studies of prospective resources conducted in this basin indicate that it is the one with the greatest oil potential, with average estimated prospective resources of approximately 30bn barrels of crude oil equivalent. That represents 55 per cent of the country’s total resources, which amount to 53.8bn barrels of crude oil equivalent. That is why Mexico is interested in exploiting that area, because in the Gulf of Mexico, on the US side, there is dynamic well activity.

The urgency is also justified because the production of Cantarell will decline at a rate of 14.1 per cent a year between 2006 and 2016, with an average volume of 921,000 barrels per day in that period.

The decline in Cantarell’s production is expected to be partially offset by greater production at Ku-Maloob-Zaap, Chicontepec, and other oilfields. Production is also expected to come from exploration projects at the Gulf of Mexico B, Reforma, Cuichapa, and Marine Light Crude fields.

The Sener admits, however, that the decline in production at exploitation projects beginning in 2011 will be due mainly to the beginning of the decline of Ku-Maloob-Zaap.

Changes

The Sener establishes that one of the most important challenges of the portfolio of 2007 projects is continuing to manage the decline of the Cantarell project, mainly because of the significant volume that this complex has contributed to crude oil production in the country for decades.

“This is why, in Cantarell’s technical planning, a new project is being designed that will seek to maximize production through the additional recovery of hydrocarbons, so that the current exploitation strategy, based on pressure maintenance, will have to change to another exploitation scheme,” the Sener explains.

The Sener predicts a notable scenario in which it expects crude oil production to show an anticipated decline throughout the period, which will accelerate beginning in 2009 because of the decline – which has already started -of Cantarell and of other oilfields that will reach their mature stage.

On the other hand, the production of other exploration opportunities will begin to be added in 2008, with a volume of 2,000 barrels per day, reaching its maximum contribution of 925,000 barrels per day in 2016.

Pemex Refining (PR) plans to build a new refinery and modernize the Minatitlan, Tula, Salamanca, and Salina Cruz plants to reduce fuel imports. But that requires 224.230bn pesos, so those projects are subject to the availability of enough investment funds.

During the 2001-2006 period, the domestic gasoline supply grew by 52,500 barrels per day, while domestic demand increased by 167,200 barrels, which led to an explosive increase in imports from 178,100 barrels per day to 273,800 barrels, equivalent to almost 40 per cent of domestic consumption.

Of the total imports, 36.7 per cent corresponded to Premium gasoline, 1.3 per cent to Premium UBA [low sulphur], and the rest to regular gasoline and methyl tert-butyl ether (gasoline oxigenate).

To address those problems, the Sener establishes, in the 2007- 2016 Petroleum Outlook, that PR will carry out strategic projects, including the construction of a new refinery that will receive 42.5 per cent of the total amount that the subsidiary needs to implement the projects.

“Considering that there are enough investment funds to implement this,” of the 224.230bn pesos needed, 14.2 per cent would have to be allocated to upgrading the Salina Cruz plant, 14.1 per cent to fuel quality improvement project, 11 per cent to residual conversion in Tula, and 6 per cent to Salamanca.

Meanwhile, to finish the modernization of Minatitlan -which is a year behind schedule -8.2 per cent of those funds would have to be allocated to it and 3.9 per cent would have to go towards expanding storage capacity, replacing the large ships used to transport crude oil or petroleum products, and also for work aimed at reducing the sulphur oxide emissions in the National Refining System, made up of six refineries.

The upgrading of Minatitlan would finish in 2008, residual conversion in Salamanca in 2009, residual conversion in Tula in 2013, the upgrading of Salina Cruz in 2014, and the increase in additional refining capacity in 2015.

In the document, however, the Sener warns that “achieving these goals requires investments and financing schemes that will allow an increase in the current production margin and in fuel quality.”

Implementing the strategic projects will allow the achievement of gasoline production yields of around 43 per cent in 2016, compared to 35.6 per cent in 2006.

Originally published by El Financiero website, Mexico City, in Spanish 13 Dec 07.

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