Mexico Oil and Gas Report

The latest Mexico Oil & Gas Report from BMI forecasts that the country will account for 24.67% of Latin America regional oil demand by 2013, while providing 24.10% of supply. Latin America regional oil use of 6.93mn barrels per day (b/d) in 2001 reached 7.95mn b/d in 2008. It should average 7.71mn b/d in 2009 and then rise to around 8.46mn b/d by 2013. Regional oil production was 10.30mn b/d in 2001, and in 2008 averaged 9.85mn b/d. It is set to rise to 10.58mn b/d by 2013. Oil exports are slipping, because demand growth is exceeding the pace of supply expansion. In 2001, the region was exporting an average 3.37mn b/d. This total had fallen to 1.90mn b/d in 2008 and is forecast to be 2.13mn b/d in 2013.

The principal exporters will be Mexico, Venezuela, Ecuador and Brazil.

In terms of natural gas, the region in 2008 consumed 205.6bn cubic metres (bcm), with demand of 243.6bcm targeted for 2013, representing 18.2% growth. Production of 212.3bcm in 2008 should reach 280.4bcm in 2013, and implies 36.8bcm of net exports the end of the period. Mexico in 2008 consumed 32.67% of the region's gas, with its market share for 2013 forecast at 30.79%. In 2008 it produced some 25.86% of the region's gas, and is expected to be contributing 21.40% by 2013.

For 2009 as a whole, we are now assuming an average OPEC basket price of US$55.00 per barrel (bbl), a 41.5% decline year-on-year (y-o-y). This represents an upgrade from the US$52 forecast we have stuck with during the past three quarters. Our OPEC basket assumption delivers likely Brent, WTI, Urals and Dubai prices of US$56.30, US$57.50, US$55.60 and US$55.60/bbl respectively. For 2010, we expect to see a recovery to US$60.00/bbl for the OPEC price (up from our previous forecast of US$58), gaining further ground to US$65.00 in 2011 and to US$70.00/bbl in 2012. Our post-2010 forecasts are unchanged and we are continuing to use a long-term price assumption of US$70.00 for 2013-2018.

In 2009, BMI is now assuming a global average gasoline price of US$62.12/bbl, with the fuel having peaked in June. The overall y-o-y fall in 2009 gasoline prices is put at 40.0%. The BMI gasoil forecast is for an average price of US$68.62/bbl, assuming a monthly high of US$92.49/bbl in December. The fullyear outturn represents a 43.4% fall from the 2008 level. The annual jet price level for 2009 is forecast to be US$65.17/bbl. This compares with US$124.95/bbl in 2008. The 2009 average naphtha price is put by BMI at US$49.06/bbl, down 43.9% from the previous year's level.

Mexican real GDP growth is now forecast by BMI to contract by 7.1% in 2009, following growth of 1.3% in 2008. We are assuming growth of just 0.8% in 2010, followed by 3.2% in 2011. In 2012/2013, we foresee GDP growth of 2.3%. Unless the government introduces a radical shift in energy policy, we expect state-owned Petr??leos Mexicanos (Pemex) to retain full responsibility for oil production, without international oil company (IOC) involvement. We are assuming oil and gas liquids production of no more than 2.55mn b/d by 2013, with the country expected to pump 3.02mn b/d in 2009. Beyond the extreme weakness of 2009, consumption is forecast to increase by no more than 1.5% per annum to 2013, implying demand of 2.09mn b/d by the end of the forecast period. The export capability would therefore be approximately 464,000b/d by 2013. Gas production is forecast to increase from 55bcm in 2008 to 60bcm over the period, with 15bcm of net imports required by 2013.

Between 2008 and 2018, we are forecasting a decrease in Mexican oil production of 24.9%, with crude volumes falling steadily to 2.37mn b/d in 2018. Oil consumption between 2008 and 2018 is set to increase by 7.5%, with growth slowing to an assumed 1% per annum towards the end of the period and the country using 2.19mn b/d by 2018. Gas production is expected to rise gradually, from 55bcm in 2008 to 70bcm in 2018. With demand growth of 41.4%, this implies a need for imports to rise from 12bcm to 25bcm between 2008 and 2018. Details of BMI's 10-year forecasts can be found in the appendix to this report.

Mexico still ranks ninth in BMI's updated Upstream Business Environment rating, in spite of its vast hydrocarbons resource base. It is barely ahead of Chile and lags well behind Bolivia and Ecuador, so is unlikely to move further up the league table over the short term. While the absolute resource base may be large, the output growth outlook is modest, reserves-to-production ratios (RPR) are low, state ownership of oil assets is absolute and country risk is relatively high. The country now ranks sixth in BMI's Downstream Business Environment rating, reflecting its high levels of oil and gas consumption, refining capacity and moderate country risk, plus low levels of forecast oil and gas demand growth. Peru is probably out of reach, although just two points ahead, while Chile is just two points behind and could mount a challenge for sixth place.