Boston, MA -- (SBWIRE) -- 03/04/2013 -- BMI View: While recent deepwater discoveries in the Gulf of Mexico have generated renewed optimism for Mexico's long-term production outlook, both the limited scope of the discoveries and the timeframe over which they expect to be developed reinforce our forecasted decline in oil production through 2021. Therefore energy sector liberalisation in President Pena Nieto's administration is becoming increasingly important, although Mexican politics make reform far from a certainty

- BMI forecasts that that Mexican oil production will decline at an average rate of 2.3% between 2013 and 2017, with an accelerated decline of 3.3% in the second half of our forecast period. Oil consumption over the same period is expected to rise at a moderate rate, reaching 2.27mn b/d by 2017, implying net exports of 353,000b/d.
- Gas output is forecast to increase modestly over the coming years, with cheap US gas deterring significant investments into domestic gas production. Gas production is projected to expand from 46.80bn cubic metres (bcm) in 2011 to 49.83bcm in 2017. This will do little to reduce import needs, however, as consumption is forecasted to rise rapidly from 61.29bcm in 2011 to 80.02bcm in 2017, implying an import requirement of approximately 30.00bcm by 2017, more than double the 2011 import requirement.
- Our bearish view of Mexican oil production is reinforced by several interconnected fundamentals, including Pemex's relative inexperience in deepwater drilling, as well as ongoing financial troubles in the form of rising capital expenditures amid a 2013 budget that remains stagnant at US$25.6bn. The inability for the company to work with foreign partners also prevents it from spreading capital risk, while also not being able to capitalize on foreign expertise and technology. Indeed, the US-Mexico maritime border has seen an average of 100 wells a year drilled by more than 24 oil companies. For its part, Pemex has only been able to drill an average of two wells a year since 2006.
- The stakes for energy sector liberalisation have therefore never been higher. In our view, due to the time that it will take for production to come online (for example, the NHC believes it will take approximately 10 years for the September 2012 Trion-1 oil discovery to begin commercial production), any delay in oil reform will only further push the potential for a significant increase in production past our current forecast period. As such, it is imperative that Pena Nieto tackles energy sector liberalisation soon into his presidency.

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