Mexico's energy sector has been declining in productivity. Between 2004 and 2012, crude oil output fell by 25 percent, from 3.4 million barrels per day to 2.5 million barrels per day. Crude oil exports by volume declined 32 percent, from 1.9 million barrels per day to 1.3 million barrels per day over the same period. Natural gas output has been steadily declining since 2009, causing imports to spike. Over the past decade, proven reserves of crude oil have fallen 37 percent. Roughly a decade after nitrogen injection temporarily boosted production, output at Mexico's two most important fields, Cantarell and Ku-Maloob-Zaap, is either already declining or is expected to peak soon as the fields enter their natural decline phase.
As the output of cheaply produced crude oil from the Bay of Campeche drops, state-owned energy company Petroleos Mexicanos' profitability will also decline. To maintain production levels, Petroleos Mexicanos, better known as Pemex, needs to look beyond the shallow offshore areas, either into the deeper waters of the Gulf of Mexico or into unconventional exploration and production. This would require a massive upfront investment of money that Pemex simply does not have due to its unprofitable downstream sector and high tax burden. To solve this problem, Pemex must improve its tax, pension and subsidy liabilities and gain access to increased levels of capital, either from private domestic sources or foreign investors.
When low-cost oil and natural gas was readily available, Mexico did not need to confront the nationalist regulatory structure put in place in the first half of the 20th century that limited foreign ownership and investment. However, since the low-cost options, such as oil produced at below $10 per barrel, are now in decline, politicians and the energy industry in Mexico must rethink the sector's regulatory framework.
