Faced with rising prices, Pemex plans to increase natural gas production and reduce flaring

Mexico’s national oil company Petroleós Mexicanos (Pemex) is working to limit flaring and increase natural gas production, executives said last week on a call for results.

Reinaldo Wence of the Pemex Transformación Industrial downstream unit said “we need all the natural gas we can get… especially with the weather getting cold”. He was referring to the onset of winter in the northern hemisphere and the global natural gas crisis.

Wences said upstream Pemex Exploración y Producción (PEP) is working to add an additional 1 billion cubic feet per day in the coming years, adding that the Mexican market needs around 10 billion cubic feet per day. day of natural gas to cover industrial and economic needs.

Over 60% of that figure today is made up of pipeline imports from the United States. “We still intend to import,” Wences said.

Mexico has strived to improve the supply of natural gas over the past decade even as its electricity grid and industry have increased their use of this fuel.

Before the call, Pemex CEO Octavio Romero Oropeza said the company is also aiming to reduce flaring, a long-standing problem for the state-owned oil company. In the third quarter, Pemex burned 13% of its production, or 606 MMcf / d. Romero said he aimed to reduce that number to 2% next year, without providing details.

To this end, executives said a “risk strategy plan” around environmental, social and governance (ESG) issues was being developed for the period 2022-2040. Amid growing alarm over its environmental record, Pemex began including an ESG component in its earnings presentations for the first time in the last quarter.

Pemex also suffered two catastrophic sea fires that hampered its operations in the third quarter, searing the company’s safety record in the spotlight.

Third quarter natural gas production increased 7 MMcf / d from the same period last year to 3.690 Bcf / d. Associated gases represent 73% of the total.

Oil production also increased during the period. Pemex produced 1.761 million bpd in the quarter, up 84,000 bpd. The so-called “priority fields” were producing 280,000 bpd at the end of September, executives said. These new onshore fields were led by Quesqui, which is also a leading natural gas asset.

Oil averaged $ 66.90 per barrel during the quarter, roughly double the Mexican price over the same period in 2020. Pemex sees production reach 2.063 million bpd by the end of this administration. .

Capital spending through September stood at just over 100 billion pesos, or $ 4.8 billion, compared to 122 billion pesos for the year 2020, the executives said.

Despite the high price environment, Pemex posted a loss of 77.2 billion pesos ($ 3.7 billion) for the quarter, compared to a profit of 1.4 billion pesos in the same period last year. . Executives attributed the result to its onerous tax burden, as well as currency losses.

[Is the Current Natural Gas Price Spike Here to Stay? Tune in to NGI’s Hub & Flow podcast to listen to NGI’s Christopher Lenton speak with global energy expert Nikos Tsafos about the globalization of natural gas, soaring gas prices, geopolitical implications of LNG and how Mexico’s natural gas market must prepare for the volatility ahead. ]

Closer ties with the state

The tax burden underscores the symbiotic relationship between Pemex and the Mexican government. Executives said on the call that the company is contributing about double last year’s amount to the federal budget and that Pemex is the largest contributor to government revenues in Mexico.

But help is also going the other way. Since President Andrés Manuel López Obrador came to power at the end of 2018, he has pledged to do everything in his power to “strengthen Pemex”. As the latest difficulty in this strategy, Romero said ahead of the call for results that the Department of Finance (Hacienda) would now assume Pemex’s debt amortization payments until 2024.

“We have an excellent collaboration with the new team of [the ministry]”said CFO Alberto Velazquez on the call.” We are working together to have a coordinated debt strategy. “He said that” we have received very strong support from the government “to meet the timetables for debt and amortization.

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