Potential Revival of Venezuelan Oil Output May Create Mid- to Long-Term Issues for Mexico
Trump administration’s plans to sharply increase Venezuelan oil production are unlikely to affect Mexican crude production in the short term, but could eventually limit foreign investment in the country’s energy sector, industry analysts said on Tuesday.
“The immediate effect for Mexico is really marginal,” Gonzalo Monroy, managing director at Mexico-City based energy consultant GMEC, said in an interview. But he added that while Mexico wants to attract more foreign investment, “fundamentally it has nothing attractive to sell.”
Monroy said U.S. companies have increasingly chosen to spend on projects in other regions, such as Brazil and West Africa, rather than in Mexico even before the White House said it wanted U.S. companies to rebuild the Venezuela’s production infrastructure and increase output.
Efforts by Mexican state-owned oil company Pemex to award international oil companies shared contracts to develop new production fields has so far failed to draw interest from U.S. exploration and development companies and the first five contracts announced under this strategy will be awarded to private Mexican companies.
After U.S. military forces launched a raid Saturday in Caracas to arrest Venezuelan President Nicolás Maduro and bring him to the U.S. to face drug-trafficking charges, Trump said the U.S. would maintain control of the country and bring U.S. oil companies in to develop the country’s oil reserves that are estimated at more than 300 billion bbl.
Trump on Tuesday said Venezuela will sell 30 million to 50 million bbl of crude to the U.S. at market value, and the proceeds would be managed by Washington.
“The fact that Trump said U.S. companies will reactivate the industry isn’t set in stone. We still need to see whether there is interest from other players to do so,” Monroy said.
“We’re talking about years of underinvestment and a lack of repairs in the fields and infrastructure, and that’s going to take quite a while to fix and a lot of money,” he added.
Before U.S. producers can even consider helping to revive an industry that would require at least $60 billion in investment, Venezuela would need provide clarity on what the post-Maduro government will look like and whether a democratic transition will take place, panelists said at a Bloomberg webinar.
“That would allow Venezuela to slowly, but surely, get back to that past splendor, in terms of GDP gains, a gradual recovery in oil production, a rebound in debt markets that have been rattled by the news, and the return of its diaspora,” Jimena Zúñiga, a Latin American geoeconomics analyst at Bloomberg, said.
The Bloomberg speakers outlined different scenarios involving a stalled transition or political chaos, in which oil production could fall well below 1 million b/d, as well as a more optimistic scenario in which crude production could approach 2.5 million b/d.
In any case, any impacts on Mexico’s oil industry would likely not materialize until 2027 or later, assuming order is restored in Venezuela and oil development becomes more profitable for U.S. firms there than in Mexico, Ramsés Pech, an energy industry and economic consultant, said in an interview.
Under Mexico’s mixed-contract model, companies must grant Pemex 40% of profits, while in Venezuela they could hypothetically gain access to all profits, Pech said.
Mexican President Claudia Sheinbaum has set a target for Pemex to reach oil production of 1.8 million b/d by 2028, prioritizing domestic supply and limiting exports to no more than 400,000 b/d, according to the company’s 2025–2035 business plan.
Of that volume, 150,000 b/d would be sent to Pemex’s Deer Park refinery near Houston, leaving less for external sales.
“Venezuela could position itself as one of Mexico’s main competitors with U.S. backing in two specific areas that would affect the country,” should U.S. companies decide to invest there and deploy the experience and technology that made the U.S. the world’s largest oil producer since 2018, Pech said.
Venezuela’s heavy crude, in addition, would compete directly with Mexico’s Maya crude, as well as heavy barrels from Ecuador and Canada, according to Vincent Piazza, senior equity analyst at Bloomberg Intelligence. Over time, heavy crude oil spreads would weaken, he explained.
“More supply from Venezuela would widen the price discount of light barrels relative to heavy barrels,” he added.
Still, Jaime Brito, executive director refining and oil products at Dow Jones, said all of those scenarios will play out over the mid- to long term. “The oil industry is a long-term business,” he said.
“Any company that would potentially participate in Venezuela would need the social, regulatory and legal transition to be completed successfully. They need to see that there is rule of law to justify a long-term investment.”
Reporting by José Luis Adriano, jadriano@opisnet.com: Editing by Jeffrey Barber, jbarber@opisnet.com