Mexico offshore oil and gas

Since opening up its oil and gas sector in 2013 under President Enrique Peña Nieto to companies other than state-owned Pemex, Mexico has attracted widespread attention from the international oil industry. Much of that interest has focused on the country's offshore resources in the shallow water areas of the Gulf of Mexico. In the three years following the reform, international geophysical contractors spent over $2 billion on seismic surveys, more than tripled the exploratory work carried out previously by Pemex. As of 2018, the government has carried out multiple licensing auctions, with 107 contracts being awarded to 73 companies from 20 countries, and the Mexican State entitled to 74% of profits from field development. The election of leftist President Lopez Obrador in 2018, a strong opponent of oil sector privatization, created some uncertainty for the offshore oil boom; however, in the lead-up to the election, Lopez Obrador signaled a moderate tone toward continuing the liberalization of the oil industry, albeit with a stricter eye toward eliminating corruption in the process.

CO2 Emissions

It is estimated that 30 billion barrels of oil lie in the Mexican portion of the Perdido Fold, which straddles the US/Mexico offshore divide in the Gulf of Mexico. Total CO2 that would result from combustion of the 30 billion barrels in Mexican portion of the Perdido area amounts to 12.9 billion tonnes, assuming .43 tonnes of CO2 per barrel for oil.

Total CO2 that would result from combustion of the estimated 1.4 to 2 billion barrels of oil in the Zama field, located off the shore of Veracruz state, amounts to 860 million tonnes.

Strategic Significance

Mexico is ideally situated for providing oil and gas to East Asia, where the largest growth in demand is taking place. In comparison to producers on the U.S. side of the border, who face the challenge of moving oil thousands of miles from the Gulf to the Pacific Ocean, Mexico's producers have access to the Tehuantepec Isthmus, which is only 200 km wide at its narrowest point.

While Mexico's oil production has been declining, the offshore discovery of the large Zama field in the Sureste basin has been touted as one of the largest new plays in the Western Hemisphere in recent years, with the potential to reverse the decline in national production.

The Mexican portion of the U.S.-Mexican Perdido Fold belt in the Gulf of Mexico contains an estimated 30 billion barrels of oil. Rystad Energy estimates 36 bbbl of undiscovered resources.

Companies Involved

Perdido Fold

In partnership with PEMEX, Australian mining and oil giant BHP Billiton won the rights to operate in the Trion Field in late 2016, taking a 60 percent stake in the project valued at some $11 billion, while Mexico’s state-owned oil company Pemex [PEMX.UL] holds the remaining 40 percent.

In 2016 a consortium led by Total and including ExxonMobil won the rights to drill in Block 2 of Perdido Fold.

Other bidders at a January 2018 rights auction included Shell in tandem with Qatar Petroleum, and CNOOC in tandem with PC Carigali (PETRONAS).

Zama field

The field was discovered and will be operated by Talos Energy as Mexico's first privately-owned oil field.

Potential ESG (Environmental, Social, and Governance) Risks

Corruption

According to former Pemex chief Adrian Lajous Vargas, "Corruption is everywhere in all areas and at all levels of the hierarchy...organized crime has moved into the logistical activities of Pemex."

NGO's Involved

So far it does not appear that Mexican environmental NGOs (such as CEMDA) and inter-America environmental organizations such as AIDA have become involved in offshore exploitation in the Gulf of Mexico. In Belize, the Belize Coalition to Save Our National Heritage, which was founded in 2011 and grew to include 40 local and international partners, gathered 20,000 signatures in support of a nationwide referendum to stop offshore oil exploration. In August 2017, Prime Minister Dean Barrow announced support for an indefinite moratorium on offshore exploration and drilling, which became law on December 30.

Local Opposition

Mexico is the sixth-most visited country in the world, and the tourism sector, "an industry without smokestacks," plays a major role in the national economy. That industry is heavily concentrated on the Gulf Coast and is highly sensitive to the effect of oil spills and other impacts of offshore drilling.

Mexico's Mesoamerican Barrier Reef has received less international attention than Australia's Great Barrier Reef, but it is the second largest in the world and is already suffering severe impacts from algae blooms and other pollution. While the Mesoamerican Barrier Reef is located on the Caribbean Coast and therefore somewhat farther south than the current areas subject to drilling, the impacts of any spill on the Gulf Coast would certain have a negative effect.

The coastal provinces of Amaulipas to the north and Veracruz to the south are directly adjacent to the drilling area includes the cities of Veracruz and Villahermosa. This coast is renowned for its natural beauty and pre-Columbian archaeological sites.

Privatization of oil has been a hot-button issue in Mexico for the past decade, and environmental issues are one of the core elements of the debate. One article noted such issues as having been at the core of the original appropriation of oil in 1938: "For local oil workers, strikes and sabotage became a way of life. Beyond the refineries and oil fields of Veracruz and Tamaulipas themselves, massive oil spills regularly threatened the livelihood of fishermen and farmers. And the horrific fires and explosions, the smoke and fumes that billowed from inside oil operations, impinged on the surrounding towns, stoking an anger and resistance that by 1938 made expropriation seem the best solution."

One writer described the growing opposition as follows:

The damaging hand of state-run oil and petrochemical production on this region was made abundantly clear on August 16, at a gathering I conducted at the Universidad Veracruzana in Minatitlán. There, a representative array of citizens and Pemex spokespeople shared recollections of just how deeply this industry had affected their region. Though Pemex representatives argued that its attention to the environment had much improved starting in the early 1990s, they made little effort to deny the flood of critical testimony that followed. Fisherman and biologists reported plummeting populations of fish all along the river, especially near the plants. Those living in neighborhoods near the refinery talked of regular visitations by fumes, smoke, and strange smells. Both they and doctors spoke of unusual concentrations of childhood leukemia and other deadly ailments around plants and in the region as a whole. Nevertheless, a dearth of statistics or other studies—even more sparse than in Louisiana’s “Cancer Alley”—has kept most of these claims in the realm of the “merely” anecdotal.

The good news is that many in southern Veracruz, at least, already know the drawbacks of having an oil industry next door, and that some of them have been organizing. But thus far, aside from Greenpeace Mexico and a 2007 visit from Global Community Monitor, they have received little support either from national or international environmental groups. Those Americans who have become so concerned about fracking or oil drilling or climate change need to lift their eyes beyond the confines of their own local and national debates. In this historic, far-reaching contest over the future of Mexican oil and gas, all these same threats are in play, boding a new depth of devastation to the humanity and ecology of this far corner of the earth.

Project Status

Perdido Fold

BHP Billiton announced that it will begin drilling in the Trion block in late 2018. Total and ExxonMobil have announced plan to begin drilling in the Perdido Fold in October 2018.

Zama field

The field was discovered by Talos Energy in 2017. Production is expected to begin in 2022, and Talos estimated that the Zama field Talos: Zama field could deliver first oil in 2022 and will provide 10% of Mexico's oil by 2024.

Infrastructure

Drilling in the Perdido Fold is technically challenging. A deep submarine canyon cuts across the field, and one escarpment near the spar is nearly 1,500 feet (457 meters) high. The reservoirs are also far from other areas of oil and gas production in the gulf. The rugged sea floor makes it harder to install subsea equipment and pipelines, and the extreme water depth makes drilling more difficult. There is also a wide range of permeability in its oil reservoirs, the reservoir pressure is low, and there are significant differences in the quality of the oil.

The Perdido platform is the deepest offshore drilling platform in the world.

With respect to transporting production from the Gulf of Mexico to East Asian markets, Mexico's Tehuantepec Isthmus provides a point of accessibility due to its narrow width of 200 km. In order to facilitate transport of hydrocarbons across the isthmus, Pemex installed a network of pipelines between 2015 and 2018.

Domestic Political Situation

Peña Nieto opened up Mexico's oil sector to overseas firms. In response, more than 70 different firms from a score of countries have committed to investing at least $180 billion in oil exploration projects.

In the past, newly elected President Andres Manuel López Obrador has opposed foreign involvement in Mexico's oil industry; however, during the campaign López Obrador pledged to increase oil production from 1.9 million bpd to 2.5 million bpd.

A feature in Foreign Policy describes López Obrador's current position as follows: "López Obrador made opposition to Mexico’s historic 2013 opening of its oil industry the centerpiece of his previous run for president. Seeing himself as the political heir to giants of the Mexican revolution — especially Lázaro Cárdenas, who famously nationalized Mexico’s oil industry in 1938 — López Obrador has long advocated a nationalist approach to the country’s economic development and its abundant natural resources." Nevertheless, in July 2018 López Obrador pledged to increase oil production from 1.9 million bpd to 2.5 million bpd.

International Dynamics

The Perdido Fold belt falls under the 2013 Outer Continental Shelf Transboundary Hydrocarbon Agreements Authorization Act. The agreement established a cooperative process with the U.S. and legal framework for safely managing and jointly developing transboundary reserves, and ended the moratorium on exploration and production in the transboundary area.

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