Mexico Oil Boom May Help U.S.

Mexico oil production is projected to increase at least 30% during the next ten years–reducing U.S. dependence on oil from the Arab world and creating new jobs for American companies that supply tools, equipment and services to Mexican oil fields.

Today Mexico is the fourth largest source of U.S. oil imports. With increased production, it may climb to rank as America’s third-largest foreign source of oil by 2026. Canada is America’s largest source of foreign oil.

Mexico’s production will surge by some 38% in barrel-per-day terms by the end of the decade, according to a report from the International Energy Agency, an independent organization of 29 oil-importing nations. The report comes just weeks before a new round of bidding for exploratory drilling rights in Mexico on December 5th.

The oil boom is expected to mean increased business opportunities for American firms and will help the United States reduce its dependence on importing oil from outside North and South America.

While Mexico’s oil production is projected to fall from roughly 2.1 million barrels per day today to fewer than 2 million barrels per day by 2020, according to the IEA’s Mexico Energy Outlook 2016, oil production is then projected to climb sharply. The report projects Mexico will produce 3.4 million barrels per day by 2040.

The boom will be driven by the exploration of new deep-water oil fields in the Gulf of Mexico and the application of enhanced oil recovery techniques in existing fields. Traditionally, the state-run oil company Petróleos Mexicanos (more commonly known as Pemex) has been slow to make capital investments in new technologies, but that is changing as more foreign firms enter the field.

New drilling opportunities will also boost oil output. “The southern half of the Gulf of Mexico is a tremendous opportunity because until now the region has been under-explored,” said Tim Samples, an analyst of the Mexican energy industry at the University of Georgia in Athens.  Pemex has drilled only 45 exploratory wells on the Mexican side of the Gulf of Mexico. Meanwhile, on the American side, more than 1,200 wells have been drilled in the deep water portions of the Gulf of Mexico.

The increase in production will be partly due to the liberalization of the Mexican oil sector. Reforms adopted in 2014 allowed for  the first foreign-direct investment in the oil sector since Mexico nationalized it in 1938.

“What happened with Pemex is the story of other national oil companies, the easy-to-get oil is running low. Pemex is not as good at shallow-water or deep-water projects, ” as it is at land-based drilling operations, said Samples. “Pemex realizes foreign companies can bring expertise to these projects and to others that are technologically challenging.”

Several U.S. firms are expected to benefit from increase in Mexican oil production. McDermott International, an engineering and construction company that specializes in large oil and gas projects has worked with Pemex on several of its offshore projects.

McDermott International, working for Pemex, is set to finish the Abkatun-A2 platform, the company’s largest and costliest Pemex-related project so far. The massive platform will be deployed to Mexico’s Bay of Campeche in 124-feet of salt water when complete.

“We see Mexico as a growth area for our company,”said Edmund Memi, a spokesperson for McDermott International. “The opening of the Mexican offshore market to new operators provides an opportunity to build on a solid foundation provided by our market leading yard in Altamira.”

President-elect Donald Trump vowed during his campaign to cut America’s dependence on foreign oil. Currently, Canada and Saudi Arabia are the largest sources of American oil imports followed by Colombia, according to U.S. Energy Information Agency. Increased Mexican production could help wean America from its dependence on Saudi oil.

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