MSCs mark first step toward natural gas independence for Mexico

By OGJ editors
HOUSTON, Dec. 2 -- The multiple service contracts recently awarded by Petroleos Mexicanos, Mexico's national oil company, to international oil companies "mark an important step on the road to freeing Mexico from its growing dependence on gas imports," said officials at Wood Mackenzie Ltd., Edinburgh.

MSCs came about as a direct result of Mexico's strategic need to increase gas production so as to stem a rising tide of expensive imports, they said. As "controversial as they are" among Mexicans, the MSCs are necessary because "of the awkward fact that Mexico, a gas-rich country with huge resources, actually has to import 25% of its gas needs from the US," WoodMac analysts said in a report released Monday.

'Lackluster' bid response
The strategic gas plan launched by Pemex last year is designed to increase Mexico's gas production to 8 bcfd in 2008 from 4.4 bcfd in 2002. Pemex officials expect gas production from the seven MSC blocks offered to increase to 1 bcfd by 2008-09 from the current 30 MMcfd level.

"The four MSCs awarded in recent weeks are unlikely to boost Mexico's gas supply to any significant degree, and the country will have to work much harder if it is to significantly reduce, let alone end, its dependence on foreign imports," WoodMac analysts noted.

Although the bidding round generated huge interest within the oil and gas industry because of its historic precedent, it didn't generate much enthusiasm among potential bidders. "Significantly, only one of the four blocks awarded attracted more than one offer," WoodMac analysts observed.

Pemex received no bids for the larger Corindón-Pandura and Ricos blocks, but the company is scheduling workshops "to reexamine the technical data, reevaluate the terms and conditions offered, and determine the suitability of a second bidding round" in 2004 (OGJ Online, Oct. 29, 2003).

Meanwhile, the bidding deadline for the Olmos block was extended to Jan. 14 at the request of an interested party for more time to assemble necessary data, Pemex said.

"This lackluster response was widely anticipated long before bidding took place, a result of the rather onerous contract terms," said Matthew Shaw, senior Latin America analyst at WoodMac. "In particular, many companies dislike the fact that the upside potential is minimal. Moreover, the system disallows the contractors from booking any reserves, an important stumbling block for many companies," he said.

Successful bids
Repsol-YPF SA, the Spanish-Argentine major oil and gas company, bid more than $2.4 billion for a MSC on the Reynosa-Monterrey block to become the first foreign company authorized to participate in exploration and development of Mexican hydrocarbons since that country nationalized its oil industry in 1938. The company plans to invest $170 million for E&D in the next 3 years in Mexico's Burgos basin (OGJ Online, Oct. 21, 2003).

Pemex selected a consortium led by Brazil's Petróleo Brasileiro SA (Petrobras) to develop the 371 sq km Fronterizo block in northeastern Mexico under a $265 million. The 15-year contract includes the drilling of 100 wells, infrastructure installation, and maintenance on the block in Nuevo Leon state (OGJ Online, Nov. 25, 2003.)

The other group bidding for Fronterizo—Houston-based oil field services company Amistad Energy along with a subsidiary of China National Petroleum Corp. Ltd. and the Chinese firm Tiainjin Dagang Shengkang Petroleum Technology Development Co.—was disqualified because some required documentation was missing.

The Petrobras-led group, which includes Teikoku Oil Co. Ltd. of Japan and Diavaz Group subsidiary D&S Petroleum of Mexico, also won a $650 million contract Oct. 23 to develop the Cuervito block, also in Nuevo Leon (OGJ Online, Oct. 22, 2003).

Tecpetrol, a unit of Techint, was part of the consortium that won the 20-year contract for the Misión block in the third MSC contract.

"Four blocks have now been awarded to well-respected international oil companies, including Repsol-YPF, Petrobras and Tecpetrol; hence, in this respect, the bidding round has not been a complete failure," Shaw said. "Many market observers had predicted an even lower turnout, so Pemex can afford to be fairly relieved about the result."

Based on its own "bottom-up" analysis of future Mexican gas supply, WoodMac projects Mexico's gross gas production will average 4.5 bcfd in 2003. However, after subtracting 1.8 bcfd of oil field consumption and other "losses," they project the net amount of gas reaching market will be 2.7 bcfd.

"We also forecast that demand will be 3.6 bcfd. Hence, imports will average 900 MMcfd, which is 25% of demand," said WoodMac analysts. "We expect imports to peak at around 940 MMcfd next year. After that, a combination of the MSCs kicking in to boost supply and a slowing in gas demand growth will have the effect of reducing Mexico's import requirements."

"The irony is that Mexico has ample gas reserves to not only meet domestic demand but even to export gas to the US," Shaw said. "However, far more sizeable investment will be required if Mexico is ever to achieve this dream."

Related Articles

Watching Government: This year's 'infrastructure' matters

01/12/2015 In one of the busiest Decembers ever for oil and gas in the nation's capital, one word-infrastructure-kept popping up as a key challenge for 2015.

For the US economy, a falling oil price has drawbacks, too

01/05/2015

Cheer in the US about an economic lift from falling oil prices needs qualification.

Russia sanctions realign Arctic exploration, geopolitics

01/05/2015 The latest Western sanctions on Russia's Arctic gas industry, including OAO Gazprom and OAO Novatek, have had a geopolitical impact on the Kremlin....

Trinidad and Tobago to develop ‘master plan’ for gas development

12/29/2014 Trinidad and Tobago’s government has hired UK-based consulting firm Poten & Partners to develop a natural gas master plan for the Caribbean twi...

Woodside to buy Apache's interests in Wheatstone, Kitimat LNG for $2.75 billion

12/22/2014 Woodside Petroleum Ltd. has agreed to acquire interest in the Wheatstone LNG and Kitimat LNG projects, respectively in Western Australia and Britis...

EIA: US proved oil, gas reserves continue to climb

12/15/2014 US proved reserves of oil and natural gas have increased by 9% and 10%, respectively, according a recent report from the US Energy Information Admi...

Falling prices may pose new test for China oil policies, speakers say

12/15/2014 China, which successfully revised its oil strategy in response to new technologies since 2008, could face fresh tests if prices stay low for a prol...

Encana plans to hit the ground running in Permian

12/12/2014 Encana Corp. has announced its second major acquisition in a Texas oil play this year, agreeing in September to acquire Permian basin-focused produ...

Uncertainty lingers about local content rules as Mexico prepares for competitive bid round

12/12/2014 The energy industry around the world has it eyes on Mexico as the country implements constitutional and legislative reforms that are set to open it...

White Papers

What is System Level Thermo-Fluid Analysis?

This paper will explain some of the fundamentals of System Level Thermo-Fluid Analysis and demonstrate...

Accurate Thermo-Fluid Simulation in Real Time Environments

The crux of any task undertaken in System Level Thermo-Fluid Analysis is striking a balance between ti...

6 ways for Energy, Chemical and Oil and Gas Companies to Avert the Impending Workforce Crisis

As many as half of the skilled workers in energy, chemical and oil & gas industries are quickly he...
Sponsored by

AVEVA NET Accesses and Manages the Digital Asset

Global demand for new process plants, power plants and infrastructure is increasing steadily with the ...
Sponsored by

AVEVA’s Approach for the Digital Asset

To meet the requirements for leaner project execution and more efficient operations while transferring...
Sponsored by

Diversification - the technology aspects

In tough times, businesses seek to diversify into adjacent markets or to apply their skills and resour...
Sponsored by

Engineering & Design for Lean Construction

Modern marketing rhetoric claims that, in order to cut out expensive costs and reduce risks during the...
Sponsored by

Object Lessons - Why control of engineering design at the object level is essential for efficient project execution

Whatever the task, there is usually only one way to do it right and many more to do it wrong. In the c...
Sponsored by

Available Webcasts



The Future of US Refining

When Fri, Feb 6, 2015

Oil & Gas Journal’s Feb. 6, 2015, webcast will focus on the future of US refining as various forces this year conspire to pull the industry in different directions. Lower oil prices generally reduce feedstock costs, but they have also lowered refiners’ returns, as 2015 begins with refined products priced at lows not seen in years. If lower per-barrel crude prices dampen production of lighter crudes among shale plays, what will happen to refiners’ plans to export more barrels of lighter crudes? And as always, refiners will be affected by government regulations, particularly those that suppress demand, increase costs, or limit access to markets or supply.

register:WEBCAST


Oil & Gas Journal’s Forecast & Review/Worldwide Pipeline Construction 2015

When Fri, Jan 30, 2015

The  Forecast & Review/Worldwide Pipeline Construction 2015 Webcast will address Oil & Gas Journal’s outlooks for the oil market and pipeline construction in a year of turbulence. Based on two annual special reports, the webcast will be presented by OGJ Editor Bob Tippee and OGJ Managing Editor-Technology Chris Smith.
The Forecast & Review portion of the webcast will identify forces underlying the collapse in crude oil prices and assess prospects for changes essential to recovery—all in the context of geopolitical pressures buffeting the market.

register:WEBCAST



On Demand

Optimizing your asset management practices to mitigate the effects of a down market

Thu, Dec 11, 2014

The oil and gas market is in constant flux, and as the price of BOE (Barrel of Oil Equivalent) goes down it is increasingly important to optimize your asset management strategy to stay afloat.  Attend this webinar to learn how developing a solid asset management plan can help your company mitigate costs in any market.

register:WEBCAST


Parylene Conformal Coatings for the Oil & Gas Industry

Thu, Nov 20, 2014

In this concise 30-minute webinar, participants have an opportunity to learn more about how Parylene coatings are applied, their features, and the value they add to devices and components.

register:WEBCAST


Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected