Mexico continues to abstain from actively participating in decision-making sessions at OPEC+ gatherings.
For the past two decades, Mexico's national oil company, Pemex, has seen its daily crude oil production decrease steadily from its peak of 3.4 million barrels. Currently, its output is closing in on 1.4 million barrels per day, with condensates, a type of hydrocarbons, bringing the total to approximately 1.7 million barrels. There's minimal expectation for a recovery in production levels next year. This news may not be positive for Mexico, but it raises no concerns for Mexico's OPEC partners as they aim to preserve production stability amidst weak global demand.
Mexico joined OPEC+ in 2016, pledging to uphold the group's production targets, never going beyond the natural depreciation of its oil fields. At the time, Pemex was producing 2.1 million barrels daily, experiencing an annual reduction of about 100,000 barrels since its 2004 peak. Lowering production any further was an impossibility, yet aligning with OPEC+ to rebalance the market after a two-year price war proved advantageous strategically. Pemex's output had dropped by 200,000 barrels per day since the 2014 price war and its debt had skyrocketed, increasing from $64 billion in 2013 to $96 billion in 2016. For both Pemex and the Mexican government, market stability presented an opportunity to enhance the company's finances and tackle the nation's fiscal problems.
Last month, Mexico's Energy Minister, Luz Elena González Escobar, presented the "National Oil and Gas Strategy," which, while vague in details, proposed a new operational framework for Pemex:
- Pemex's focus would shift towards social objectives, prioritizing domestic supply over exports.
- Its corporate structure would undergo streamlining, eliminating departmental divisions.
- It would operate under a simplified, stable, and reduced "welfare tax" regime, merging three separate taxes.
- Pemex would be permitted to collaborate with private companies on selected projects.
In theory, a more straightforward tax system and the chance to attract private investment could enhance Pemex's performance. However, its new social mandate – stipulating that oil product prices cannot exceed inflation – may hinder its ability to boost production. Moreover, OPEC+ reforms may not promptly halt Pemex's production decline in the short term, unless they discover a significant new reserve.
The Evolution of Mexico's Oil Industry
Three previous governments attempted to reform Pemex, to no avail. Calderón Hinojosa (2006-2012) granted Pemex more autonomy over its corporate structure and introduced incentives for service provider partnerships. Pení Nieto (2012-2018) restructured Pemex again, assigning it profitability as its primary objective, authorizing it to incur more debt, and allowing partnerships with private companies in the context of thorough energy reforms. Lopec Obrador (2018-2024) provided tax relief and fostered limited collaboration with private enterprises. Each administration invested heavily in Pemex, but none of these measures halted the decline in oil production – though Pemex did manage to increase condensate production.
The root issue may not lie in geology, expertise, organizational structure, taxes, or even capital – all crucial factors – but rather in governance. Pemex operates more like a government agency than a private corporation. Its CEO functions as a cabinet member serving the president, and the Ministry of Finance regulates oil product prices and determines Pemex's financial strategy. This political entanglement hinders Pemex from effectively pursuing its objectives.
As of 2025, Mexico will probably not contribute significantly to global oil production expansion. Non-OPEC+ nations like Brazil, Argentina, and Guyana are projected to expand their output, offsetting Pemex's declining production and posing a greater challenge to OPEC+'s endeavors to stabilize oil prices.
Mexico's Pemex holds promise, which the new administration led by President Claudia Sheinbaum (2024-2030) will aim to exploit. However, Pemex's inward focus may not make 2025 the year of its remarkable return to the global oil market. Within OPEC+, Mexico will maintain a limited role.
Despite Mexico's national oil company, Pemex, experiencing a steady decrease in oil production since the early 2000s, Mexico joined OPEC+ in 2016 to support the group's production targets. Claudia Sheinbaum, Mexico's new president, will seek to leverage Pemex's potential in the coming years, but Mexico's output is not expected to significantly contribute to the expansion of global oil production by 2025, due to the increased output from non-OPEC+ nations like Brazil and Argentina.
