Mexico rebrands decline into non-Opec pledge: Update
At its 10 December meeting in Vienna, non-Opec countries led by Russia committed to reducing combined production by 558,000 b/d for six months starting on 1 January, complementing an Opec pledge of cutting up to 1.2mn b/d, led by Saudi Arabia.
Mexico's deputy oil minister Aldo Flores attended the meeting, maintaining a low profile in the wake of the government's first-ever awards of deepwater acreage to foreign oil companies in a historic auction last week.
The official statement from the meeting said the reductions pledged could encompass "managed decline" as well as active cuts.
Mexican state-run oil company Pemex tweeted yesterday that it "will reduce its production by 100,000 b/d in 2017, in line with what was approved in the 2017 Income Law and the Pemex business plan 2017-2021. This reduction is the result of the natural decline of the fields."
But Algeria's state news agency specifically asserted that the Latin American country would actively reduce output by 100,000 b/d beyond expected natural decline of 200,000 b/d. Algeria was a key player in broking both the Opec cut agreement and the deal with non-Opec producers.
Speaking this morning at Washington-based think tank Wilson Center, Flores did not directly respond to the Algerian statement. But he said Mexico's participation in the Vienna meeting was in the context of Pemex's expected production declines.
"We have been very clear that [Mexico's] managed decline that was mentioned at the meeting will take place in the context of Pemex's own plan," Flores said. "A managed decline will also help in bringing the market into the balance." Mexico's participation in the agreement between Opec and other producers will not overturn the historic opening of Mexico's energy sector, he said. "We will continue to implement our reform as planned."
Mexico's oil production has been falling steadily from a 2004 peak of 3.4mn b/d, and further declines have already been factored into the nation's 2017 budget. Next year's output is forecast to drop below 2mn b/d, from around 2.1mn b/d in 2016.
In any case, Mexico's leap back into the spotlight of global market management strategy is likely to be short-lived. The country is preparing to conduct more licensing rounds next year, cementing the break-up of Pemex's monopoly that it hopes will revive production. The Gulf of Mexico blocks awarded on 5 December offer the biggest potential upside so far, although any fresh production would take years to develop.
At today's meeting, Flores said the government is studying the possibility of setting up a more concrete calendar for bidding rounds, and plans to expand Pemex farm-outs.
Mexico was a key participant in the 1998 Riyadh Pact with Opec countries Saudi Arabia and Venezuela to cut production. Nearly two decades later, Mexico and Venezuela have lost much of their relevance because of declining production. In Latin America, only Brazil is showing immediate upstream gains driven by its gigantic sub-salt deposits. Brazil did not attend the Vienna meeting.