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Oil and gas is proving to be a sticking point in the NAFTA renegotiations, with the incoming Mexican president hoping to exclude the chapter on energy from the trade deal.

To be sure there have been a series of issues that have divided the three countries. Many of them have been resolved but even at this late date some outstanding issues remain. The U.S. and Mexico are close to hammering out their differences on cars, which would allow Canada to rejoin the talks. The three countries have not agreed on dispute resolution mechanisms, and the U.S. wants the deal to sunset every five years, which would require them to periodically renew the trade pact, a provision that Canada and Mexico oppose because it would create uncertainty.

But oil and gas are also shaping up to be a point of tension, which is an unexpected development. Incoming President Andres Manuel Lopez Obrador (often referred to as AMLO), who takes office in December, opposes the energy chapter in NAFTA, even as the current administration supports it, according to the Wall Street Journal. Energy was not included in the original NAFTA deal ratified in the 1990s because Mexico’s energy sector was under state control. That changed in 2013-2014 when President Enrique Pena Nieto succeeded in ending seven decades of government monopoly. Related: The Next Major Challenge For Norway’s Oil Industry

AMLO was opposed to those energy reforms when they passed, and while he has since softened his stance on the partial-privatization of oil, gas and electricity, his team is holding up the NAFTA negotiations over energy. “The energy sector was on the table, but it wasn’t a matter of concern. It was rather a technical issue on how to reflect Mexico’s overhaul in the treaty,” Carlos Véjar, a trade attorney at law firm Holland & Knight in Mexico City, told the Wall Street Journal.

…click on the above link to read the rest of the article…

Mexico Production and Reserves, 1H2018

August 20, 2018

Mexico Production and Reserves, 1H2018

mexico c&c production

Mexico oil production is in decline though, at the moment, not as steep as it was expected to be (at least by me – IEA predictions are closer).

Data is through June and comes from Pemex and National Hydrocarbons Information Center (CNIH)(both sites are pretty good).

For June C&C was 1870 kbpd, down 25 kbpd from May and 170 kbpd y-o-y. Yearly decline rates for each region are shown in the chart below. Production peaked in 2004/2005 at just over 3500 kbpd, so overall decline is approaching 50%.

chart/

Most of the decline has been in light oil and condensate, with heavy oil holding fairly level.

chart/

ku-maloob-zaap

The largest producer is the Ku-Maloob-Zaap complex (KMZ), which has been kept on a plateau, contrary to predictions of a decline starting about now from a Pemex presentation in 2012. The production has been maintained mainly by increasing flow from the Maloob field, and it looks like this has resulted in increased nitrogen production. Ku and Zaap production has been maintained, but the Ku field is getting close to exhaustion now. Ku is a medium oil at API 22°, while Maloob and Zaap produce heavy oil at API 12°. The two types of oil are processed separately so it’s not clear that decline in Ku can be fully replaced by the heavier oil fields, which I think also require more nitrogen for voidage replacement. Nitrogen injection to maintain production there was started in 2014, which was also when overall production came off a temporary plateau and started the current steady decline period. It would be interesting to know how the total available nitrogen is apportioned to the fields; presumably the total available is fixed and therefore so too is the net voidage replacement capacity and hence the total amount of heavy oil that can be produced.

…click on the above link to read the rest of the article…

The Shale Boom That Will Never Happen

August 9, 2018

The Shale Boom That Will Never Happen

When the National Hydrocarbons Commission of Mexico scheduled its first-ever shale tender for September this year, the July elections were obviously not front and center in the thoughts of its management. Yet now, this tender may be as good as gone after President-elect Andres Manuel Lopez Obrador said last week,“We will no longer use that method to extract petroleum.”

Obrador was responding to a question about the risks of hydraulic fracturing, the technology that enabled the U.S. shale oil and gas boom and that some believed could be replicated in Mexico, especially for gas production.

The Energy Information Administration (EIA) estimated in 2013 that Mexico has unproved but technically recoverable shale gas resources of 545.2 trillion cubic feet. Most of this, around 343 trillion cubic feet plus about 6.3 billion barrels of oil (half of the total shale oil resource base), is located in the Burgos Basin, which is connected to the Eagle Ford shale play in Texas and covers a much larger area.

While these resources remain largely untapped, Mexico’s natural gas demand is rising, and with it, the country’s dependence on U.S. imports. The Energy Ministry estimated at the beginning of this year that gas demand will average 8.32 billion cubic feet in 2018, compared with 7.99 billion cubic feet in 2017. This will further rise to 9.66 billion cubic feet in 2019. By 2031, gas demand will have risen by 26.8 percent from 2016 levels, the ministry, known as SENER, said at the time.

To date, Mexico imports as much as 85 percent of the gas it consumes, the head of the Hydrocarbons Commission, Juan Carlos Zepeda, recently said, adding that this makes increasing natural gas production a higher priority than boosting oil production. Such a heavy reliance on imports, according to Zepeda, carries not just geopolitical risk but also operational risks: a natural disaster could disrupt supply.

Uncertainty Grips Troubled Pemex, World’s Most Indebted Oil Company

August 8, 2018

Uncertainty Grips Troubled Pemex, World’s Most Indebted Oil Company

“Even a small deterioration” in its perceived credit risk could take a big financial toll on Mexico.

Mexico’s President-elect, Andrés Manuel Lopez Obrador (AMLO), does not enter office until December 1, but he’s already making big waves, particularly in the oil and gas industry. On the campaign trail, he pledged to reverse aspects of his predecessor Enrique Peña Nieto’s sweeping oil privatization reforms, suspend new oil auctions, and review contracts issued to private energy firms for signs of corruption, which, given the players involved, shouldn’t be hard to find.

All oil and gas auctions have been put on hold in the country until AMLO assumes the office of the presidency. The contracts signed to date alone represent a projected investment of around $200 billion dollars, according tothe Mexican daily El Excelsior. As such, cancelling multi-billion dollar oil and gas contracts will hardly endear AMLO to the oil majors and global investors that have poured funds into Mexico’s newly liberalized energy sector.

This potential 180-degree U-turn in energy policy not only pits Mexican lawmakers against big oil and big money interests; it also puts the world’s most indebted oil company, according to Moody’s, at a very dangerous crossroad.

In a press conference this week AMLO upped the ante by threatening to ban fracking on Mexican soil. As Associated Press reports, when asked about the potential risks of fracking, AMLO said, “We will no longer use that method to extract petroleum.”

AMLO’s riposte is unlikely to please the oil and gas companies that had their sights set on drilling in the Burgos Basin, a region in Mexico’s northern frontier that has a huge potential shale formation similar to the Texas Eagle Ford fields.

…click on the above link to read the rest of the article…

15 Flashpoints Which Could Produce A “Perfect Storm” During The 2nd Half Of 2018

July 16, 2018

15 Flashpoints Which Could Produce A “Perfect Storm” During The 2nd Half Of 2018

Events are beginning to greatly accelerate, and many believe that the ingredients for a “perfect storm” are starting to come together as we enter the second half of 2018. Other than the continual drama surrounding the Trump presidency, things have been quite calm for the past couple of years. We have been enjoying a time of peace, safety and relative economic prosperity that a lot of Americans have begun to take for granted. But great trouble has been brewing under the surface, and many are wondering if we are about to reach a major turning point. Our planet is being shaken physically, emotionally and financially, and it isn’t going to take much to push us over the edge. The following are 15 flashpoints which could create world changing events during the 2nd half of 2018…

#1 War In The Middle East – A state of war already exists in Israel. 200 rockets and mortar shells were fired into Israel on Saturday alone, and it won’t take much to spark a much broader regional war.

#2 Civil Unrest In U.S. Cities – Progressives are promising a “summer of rage”, and they are assuring us that all of the anger that has been building up against President Trump and his administration is about to starting boiling over onto the streets of our major cities all across America.

#3 The Nomination Of Brett Kavanaugh To The Supreme Court – Prominent liberals are stoking fears that the Supreme Court will start taking away “our most cherished liberties” if Brett Kavanaugh is confirmed by the Senate. Expect Washington D.C. to be the focus for a lot of the chaos that will happen later this summer.

…click on the above link to read the rest of the article…

Mexico’s New President Has The Energy Sector On Edge

July 3, 2018

Mexico’s New President Has The Energy Sector On Edge

Mexico’s historic energy reforms are now in focus with a change in administrations on the way.

Andrés Manuel López Obrador (AMLO) won a landslide victory in Mexico’s presidential election on Sunday, and appears poised to win majorities in both houses of Congress, granting him sweeping power to remake the country. His party, Morena, also won a large number of governor’s races and AMLO’s former environment minister from when he was mayor of Mexico City followed in his footsteps and won the election for mayor in the capital city.

The Mexican people, fed up with widespread corruption, poverty and violence, have handed AMLO a stronger mandate than any Mexican president in decades.

AMLO has long supported a nationalistic outlook on energy, and spent years criticizing the liberalization of Mexico’s energy reform. He repeatedly said that he would halt future auctions of Mexico’s offshore oil and gas reserves, while also promising to investigate already-awarded contracts for cases of fraud.

AMLO’s election has the oil and gas industry on edge, which fears that a swing to the left imperils its investments in the country. The majorities in Congress for AMLO’s Morena party could also neuter the strongest checks on his power.

However, the energy reforms passed under President Enrique Pena Nieto were codified with constitutional changes, which throws up a very high bar for to clear for any changes, meaning that AMLO, despite his landslide victory, still faces a steep uphill battle to roll back the partial-privatization of the oil and gas sector, if he were to go down that road.

AMLO has also suggested he would curtail or even end crude oil exports, diverting supplies for domestic refining. Mexico’s aging refineries are operating way below capacity, and Mexico has become increasingly dependent on imported fuel from the United States.

…click on the above link to read the rest of the article…

“Just Days Left” To Avoid Trade War France Says, As G-7 Condemn Trump

June 3, 2018

“Just Days Left” To Avoid Trade War France Says, As G-7 Condemn Trump

*Morneau, third left, and fellow finances chiefs gather in Canada*

Seemingly unable to grasp that Trump would dare break with decades of politically correct tradition and turn his back on allies who continue to impose tariffs on US exports yet balk when the US retaliates in kind, Le Maire said on Saturday that Washington has just a few days to take urgent measures if it wants to avoid unleashing a full-scale trade war with its European allies.

“We still have a few days to avoid an escalation. We still have a few days to take the necessary steps to avoid a trade war between the EU and the US, and to avoid a trade war among G7 members,” Le Maire told journalists after the conclusion of the G-7 meeting, according to Reuters.

*French Finance Minister Bruno Le Maire*

He added that it is up to the US to make the first move:

“The ball is in the camp of the United States, it is up to the American administration to take the right decisions to smooth the situation and to alleviate the difficulties.”

…click on the above link to read the rest of the article…

Trump Started a Global Trade War Today: Canada, Mexico Responded, So Will Europe

June 1, 2018

Trump Started a Global Trade War Today: Canada, Mexico Responded, So Will Europe

Trump has been itching for a global trade war ever since he took office. He just confirmed one.

The U.S. will impose tariffs on steel and aluminum imports from Canada, Mexico and the European Union starting on Friday. Trump’s ill-advised Tariffs Provoked Anger and Retaliation from US Allies.

The tariffs make good on President Donald Trump’s threats and show the administration is maximizing pressure to win concessions from allies, while simultaneously negotiating through a high-stakes trade conflict with China, seen as an economic competitor.

Besides steel and aluminum, the U.S. administration is studying whether tariffs should be imposed on imported cars and auto parts under the same law that gives Mr. Trump wide authority to erect trade barriers under the banner of national security.

“This is dumb,” said Sen. Ben Sasse, a Nebraska Republican. “Europe, Canada, and Mexico are not China, and you don’t treat allies the same way you treat opponents.”

Sen. Orrin Hatch, chairman of the Senate Finance Committee, said in a statement: “Tariffs on steel and aluminum imports are a tax hike on Americans and will have damaging consequences for consumers, manufacturers and workers. I will continue to push the administration to change course.”

Trump Wants to Halt German Luxury Car Imports

Via translation from WirtschaftsWoche, Trump wants to block Daimler from the US market.

US President Donald Trump has announced to French President Emmanuel Macron to exclude German premium car makers from the US market. On Macron’s visit to Washington in April, Trump said he would maintain his trade policy until no Mercedes models rolled on Fifth Avenue in New York. This reports the WirtschaftsWoche, citing several diplomats from Europe and the United States.

…click on the above link to read the rest of the article…

Four Flashpoints of Volatility

April 15, 2018

Four Flashpoints of Volatility

1 – Trade Wars Flashpoints, From China to Canada and Mexico

Wall Street has knee-jerk reactions to any trade war related headlines.

There are legitimate reasons to be concerned about trade wars. The world is increasingly more connected than ever. Many major American companies that are household names such as Starbucks (SBUX), Boeing (BA) and Apple (AAPL) rely on their exports (and imports) from China for a sizable portion of their overall sales and profits.

If China continues to retaliate against trade war policies from the U.S. with harsh measures of their own, it could hurt revenues of those firms.

But, here’s the latest revelation:

China wants to keep more of what it makes — in China — across a variety of sectors. Trade wars elevate the Chinese government’s desire to do that. The country has just recently launched a new $1.6 billion initiative called “Made in China 2025.”

The strategy entails an increase in research and development spending. That would cause Chinese companies to rely less on international technology and equipment. The more China buys internally, the less it will buy American products or need to export to the U.S.

What all of that could mean is that similar products in the U.S will become more expensive for consumers. That would hit directly at stock of those companies, making them more volatile.

While headlines from the White House continue to target China, our regional trading partners are undoubtedly some of the most important, and currently some of the most fragile.

To the north, Canada is playing up its optimism over NAFTA talks. Rhetoric is one thing, reality is another. It’s important to look at what institutions are doing, not what they’re saying.

Canada is currently enhancing its participation in several other trade agreements, including an updated Trans-Pacific Partnership that does not include the U.S. In the wake of Brexit, Canada has also made important trade links to both Europe and the U.K.

…click on the above link to read the rest of the article…

Migrant caravan: Foreshadowing the future and reflecting the present

April 9, 2018

Migrant caravan: Foreshadowing the future and reflecting the present

The march of hundreds of Central American migrants through Mexico has inflamed tensions between the Trump administration and the Mexican government and focused attention on the United States’ southern border.

The ostensible reasons for the march are familiar: The migrants were fleeing corruption, social and political turmoil, and lack of opportunity in their home countries. Many were from Honduras which suffered a coup in 2009 that continues to divide the country politically including during the last election in which supporters of the challenger to the incumbent president claim their candidate was cheated out of a win.

All of this reminded me of Jean Raspail’s novel The Camp of the Saints. In it, impoverished Indians seized hundreds of ships docked in their harbors and set sail to find a better place to live. (The book was published in 1973 when many believed that millions of Indians and other Asians would likely starve in the coming decades due to poor agricultural yields. The full effects of the so-called Green Revolution still lay ahead.)

In the novel, as the seaborne caravan makes its way westward, first to the Suez Canal, where it is repelled, then around the Cape of Good Hope, Europe braces for what it believes is an inevitable invasion of desperate Indians.

A vitriolic debate ensues inside France about whether the country should try to help the Indians or simply repel them.

Raspail, a celebrated author in France, was denounced as a racist when the book was released. His book continues to be a favorite among American white supremacists. And, former Trump advisor, Steven Bannon, is reported to be a fan of Raspail.

…click on the above link to read the rest of the article…

Will the societal collapse cross the border to the USA?

March 14, 2018

Will the societal collapse cross the border to the USA?

“Complicated days are coming, I won’t lie to you. The wave of violence isn’t going to end.”

-Jalisco Governor Aristóteles Sandoval

I just read three current articles about our Mexican neighbors to the South. I highly recommend that you take the time to do so as well.

https://mexiconewsdaily.com/news/15-dead-in-guerrero-in-weekend-violence/

“Three of the bodies were found on the road that to Larga beach and the airport, their feet and hands tied and bearing clear signs of torture. The three also presented bullet wounds.”

https://mexiconewsdaily.com/news/authorities-disband-police-in-tlaquepaque/

“…the operation was connected to the discovery last week of eight bodies in an abandoned pickup truck in the Guadalajara neighborhood of Morelos.”

https://mexiconewsdaily.com/news/self-defense-forces-forming-in-jalisco/

“We already have 30 members in the self-defense group. It’s time for the criminals to clear off and steal from somewhere else.”

This last article reminded me of a fantastic video from Vice News. I watched it a few years back. It is about a few Mormon farmers in Mexico standing up to the Mexican drug cartels.

I have many associates and friends that will no longer travel to Mexico, because it is too dangerous. These are people that know how to look after themselves. I also know several Mexicans that have moved their families to the USA to escape the violence and kidnappings. We hear Trump promoting the construction of a wall, but having spent a little time on the border, and over it, I don’t think that it will be any more effective than The Maginot Line.

Will the societal collapse cross the border to the USA? I don’t know. My crystal ball is only a novelty item. What I do know is that my entire life has occurred during a time of historically low violence in the world. Just a few generations ago, in most places, a father would be remiss if he didn’t teach his sons how to fight for their lives…and win. The chances of them needing to do so, at least once, were quite high.

…click on the above link to read the rest of the article…

Brazil and Mexico, 2017 Summaries

March 2, 2018

Brazil and Mexico, 2017 Summaries

Brazil had a fairly uneventful 2017 for C&C production. Overall production was up 4.5% at 957 mmbbls (114 kbpd average), but the December exit rate was down 4.5%, or 124 kbpd, at 2612 kbpd. There were only two new platforms with significant ramp-ups, and one of those went off line for a couple of months late in the year. The Libra (now Mero) extended test FPSO came on line in November but had achieved only 11 kbpd.

Pre-salt production exceeded 50% for the first time. It was 1356 kbpd, or 52%, in December compared to 1262, or 46%, for December 2016. There were 85 pre-salt wells up from 68, but average production for each had fallen from 19 kbpd to 16, which is as expected as they were drilled mostly on producing platforms.

Petrobras owned 94% of December production, with Statoil at 2.4% (63 kbpd) and Shell, from their BG purchase at 2.1% (57 kbpd); for 2016 the numbers were 94%, 2.1% and 2.0%.

chart/

(Note that December water data wasn’t available at the time of writing so the water cut values have been assumed to be the same as November for the chart.)

Santos platforms increased overall, but some of the older ones may be showing signs of coming off plateau. Campos platforms declined and the rate may be increasing as the water cut growth is accelerating.

chart/

chart/

This year will be a bit different as over 1 mmbpd of nameplate capacity is due to come on line, but it will be interesting to see how efficiently that amount of work is handled, and how far the ramp-up times might be limited by drill rig availability. If they add only another 20 odd wells then there is likely to be less than 400 kbpd new production. In addition reserve numbers for 2017 will come out in early April and the estimated Mero numbers will be important.

…click on the above link to read the rest of the article…

MEXICO’S OIL INDUSTRY CONTINUES TO DISINTEGRATE: PEMEX Suffers $18 Billion Loss

March 2, 2018

MEXICO’S OIL INDUSTRY CONTINUES TO DISINTEGRATE: PEMEX Suffers $18 Billion Loss

The situation in Mexico’s oil industry continues to rapidly disintegrate as falling oil production and rising costs resulted in an $18 billion fourth-quarter loss for the state-run oil company, PEMEX. Part of the reason for the huge financial loss at PEMEX was the fall in the value of the Mexican Peso. While PEMEX’s costs are in Pesos, it sells crude oil and purchases petroleum products in Dollars. Because the Mexican Peso declined 8% versus the Dollar, it put a huge strain on the company’s year-end financials.

Regardless, Mexico’s oil production continues to fall due to the natural decline from resource depletion. However, as Mexico’s oil production falls, its net oil exports have dropped significantly as well. Thus, falling net oil imports translates to less revenue for PEMEX. According to BP’s 2017 Statistical Review, Mexico’s net oil exports hit a low of 587,000 barrels per day (bd) in 2016, down from 1,867,000 bd in 2004:

While Mexico’s oil production declined from a peak in 2004, its domestic consumption has remained basically flat. Which means, Mexico’s net oil exports have fallen by more than two-thirds in just 12 years. Unfortunately, it looks like Mexico’s oil production will be down another 10% in 2017.

The next chart from Mazamascience.com shows Mexico’s net oil exports since 1960:

Mexico’s total oil production is shown in the grey area, while consumption is displayed by the black line. The green area reveals the country’s net oil exports. As we can see, Mexico’s net oil exports peaked in 2004 at 1.86 million barrels per day (mbd) and are now likely below 0.5 mbd. Falling net oil exports are a death-knell to the Mexican government because it receives a lot of its revenue from PEMEX.

…click on the above link to read the rest of the article…

Touted Energy “Reform” Goes Awry in Mexico

February 1, 2018

Touted Energy “Reform” Goes Awry in Mexico

Dream of cheaper energy in an open market turns into nightmare.

Four years ago, Mexico’s government passed a sweeping energy reform aimed at opening up Mexico’s long-protected oil and gas sectors to global competition and expertise for the first time in over 70 years. The reforms would lead to lower energy prices for domestic consumers as well as thrust Mexico into a more prominent position in the global hydrocarbons market, the government confidently predicted.

Instead, the opposite has happened: prices of gas, diesel and natural gas have soared while Mexico’s heavily indebted state-owned energy giant, Petróleos Mexicanos, or Pemex, got tangled up in the oil bust, lost $9 billion in 2016, received a bail-out, and after making money in Q1 and Q2 of 2017, lost another $5.5 billion in Q3 2017. In other words, it has been tough on Pemex.

Production at Pemex dropped 9.5% in 2017 to 1.94 million barrels per day, its lowest level since 1980. At the same time 71.6% of the gasoline used by Mexicans last year was imported. It’s a humbling statistic for a country that not so long ago boasted the world’s second biggest oil field by production, the Canterfell.

On average, 570,600 barrels per day were bought from abroad in 2017, 60% more than in 2013. Much of it came from the US. As for Diesel, 237,500 of the 317,600 barrels sold each day came from another country — an import rate of 75% — while an average of 67% of the 2,623 million cubic feet of natural gas sold per day was imported from abroad.

Mexico’s growing reliance on energy imports could make it even more difficult for the Bank of Mexico (or Banxico for short) to bring down inflation, which reached an annual rate of 6.8% in December, almost four percentage points above Banxico’s target rate.

…click on the above link to read the rest of the article…

Next Phase in Forcing Biometric Tracking on Consumers

December 27, 2017

Next Phase in Forcing Biometric Tracking on Consumers

Ironically, banks in Mexico lead the way.

In 2018, banks in Mexico will face new regulations that will oblige them to collect biometric data (finger prints and iris scans) on all of their customers. Whenever a customer asks for a new home or car loan, cashes in a paycheck, applies for a credit card or opens a new savings account, the bank in question will have to request the customer’s digital fingerprints and then match those fingerprints with data against information in the database of the National Electoral Institute.

Foreign-owned subsidiaries of global banks like BBVA and Citi are thrilled with the initiative arguing that it will help them combat identity theft. Most high street lenders in Mexico have already agreed to help build a single biometric database, says Marcos Martínez, president of Mexico’s Banking Association (ABM).

The ultimate goal is to develop a unique identification system that will work alongside the government’s national ID scheme, which is in the final stages of development. According to the former Secretary of Finance and Public Credit (and now presidential candidate for the governing PRI party), José Antonio Meade, by the summer of 2018 all Mexicans will have a single biometric identification number.

These developments are moving fast and quietly. And as is the case with biometric programs being tried and tested all over the world right now, from the uncharted backwaters of long-forgotten war zones to the bustling metropolises of the West or East, no one is being consulted along the way.

Most national passports these days include biometric data. Driver licenses in the US (which serve as de facto ID cards) already have them or soon will. Meanwhile, millions — perhaps soon billions — of people have volunteered their digital fingerprints to log into their smartphones and other digital devices. In other words, we’re already giving away our most private data to work, communicate, cross borders or get on planes.

…click on the above link to read the rest of the article…

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