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Mexico 2019 | ENERGY | INTERVIEW

A lack of investment and infrastructure maintenance has made Mexico dependent on foreign oil despite having one of the largest reserves in the world. The new administration is determined to boost the country's oil output.

Upon taking office, newly elected Mexican President Andrés Manuel López Obrador promised to revive an economic sector that has long been a source pride for Mexicans: the petroleum industry. To much dismay, national oil production has fallen by half since it peaked at 3.4 million barrels of crude per day in 2004, when Mexico was the world's fourth-largest producer.

As of January 2019, the country fell to 12th in global oil production rankings as the national oil company, Petróleos Mexicanos, or PEMEX, produced just 1.62 million bpd, its lowest crude output on record. The news was ill received by many as Mexico hosts some of the world's largest oil reserves, but production has decreased for 14 consecutive years due to poor infrastructure, lack of investment and broader management issues at PEMEX.

Now President AMLO, as he is commonly known, is acting fast to reverse the trend, directing state funds towards the most productive, established oil fields and laying out plans for new refineries that he says will help meet national energy needs while providing thousands of high-paying jobs. After years of mismanagement that have forced Mexico to import an increasing amount of its oil from the United States, AMLO has pledged to boost the nation's crude production to 2.6 million bpd by the end of his six-year term in 2024.

Among his first moves was to rebrand PEMEX with a new slogan, “For the rescue of sovereignty," in a nod to the important role oil production has played for the nation's development. AMLO has also outlined plans to build an USD8 billion oil refinery in his home state of Tabasco, in the city of Dos Bocas. The project, which was approved via a controversial referendum, was a central theme of his presidential campaign, but will be years in the making, prompting the new administration to seek out more immediate solutions to reduce the country's current dependence on imported energy.

To address short-term oil demand, Mexico's National Hydrocarbons Commission (CNH) has approved a USD339-million development plan for the Cheek shallow oil fields in Campeche Bay. Discovered in 2015, the project comprises 20 oil fields, of which four are on land and 16 are offshore wells that together are projected to produce 18.68 million barrels through 2030. According to CNH Commissioner Alma América Porres Luna, the bulk of petroleum output would take place in the next few years, surpassing 18,000bpd by 2020 before falling to 2,000bpd in 2024. The Cheek reserve is “not considered a very large field, but it can contribute toward rapidly increasing production," Porres Luna said.

Meanwhile, PEMEX has received state approval to develop three additional fields—the Xikin, Chocol and Esah—which together with the Cheek are expected to boost the nation's oil output by 73,000bpd by the end of 2020. “In 2019 the primary goal for PEMEX is to halt the decline in our crude oil production," Alberto Velázquez, chief financial officer for PEMEX, said. “We are still some ways from achieving our goal. It is important to note that the uptick we expect in production would occur during the fourth quarter of 2019, when our 20 new fields start producing."

Though such plans have drawn criticism for their relatively short production cycles, state officials are making use of established, smaller oil reserves to decrease imports as new oil production hubs are developed. Long-term challenges will inevitably stem from PEMEX's USD107 billion debt, which makes it the most indebted oil company in the world. A combination of mismanagement and corruption have left the company's refineries working at just one third of their capacity, and the state's tax codes diverts a significant sum of the company's profits.

AMLO said he will continue to restructure the bureaucracy that has stifled production and innovation at PEMEX and has also begun cracking down on rampant oil theft, in which criminal gangs have been siphoning petroleum and gasoline from the nation's pipeline network. If the president can implement his vision to restore at least some of Mexico's oil output, the country will be able to wean itself off US petroleum imports, which have tripled from USD10.4 billion in 2008 to a record high of USD30.5 billion in 2018.