Page 4 - LatAmOil Week 30

LatAmOil COMMENTARY LatAmOil
The hazards of “magical thinking”
In trying to avoid creating the impression of a crisis at Pemex, Mexico’s president is giving the gas sector’s problems room to grow
WHAT:
Lopez Obrador says giving emergency funding to Pemex would unduly alarm investors.
WHY:
The NOC is facing serious challenges that the government has not done enough to address.
WHAT NEXT:
Gas supply problems are likely to spread beyond the Yucatan and past the end of the summer.
MEXICO’S President Andres Manuel Lopez Obrador is known for making soaring pro- nouncements about his plans to lead the country into a bright new era devoid of poverty, depriva- tion, crime and corruption and emigration.
His victory in the 2018 election led Leon Krauze, a well-known Mexican journalist, author and television anchor, to accuse him of “magical thinking.” In a column published in the Washington Post in July 2018, Krauze wrote that Lopez Obrador was not only “short on detailed policy proposals” but convinced of his ability to resolve the country’s problems “mostly through the magical radiance of his own example.”
is charge of “magical thinking” may be a bit harsh, but the president certainly seemed to be engaged in circular thinking earlier this week, when he responded to a question about an emergency infusion of cash for Pemex, the national oil company (NOC). In an interview with Bloomberg, he said that Pemex’s current nancial woes were not enough of a reason for the government to tap into its rainy-day fund.
“I don’t want to create any reason for insta- bility,” he said. “If we use that fund, it may seem like there’s a crisis.” He was commenting on the Mexican Finance Ministry’s previous call for transferring about $7bn from the Oil Revenue Stabilisation Fund, known locally as FEIP, to Pemex.
Lopez Obrador’s sentiments may not be
completely o base, given the important role that public perception can play in investor senti- ment. But they do sound a bit naive, given some of the challenges that the NOC is now facing.
Production trends
Pemex has had a di cult summer. Following the cancellation of another bidding round and a credit ratings downgrade by the Fitch agency, it has had a hard time overcoming the nega- tive impressions generated by its deteriorating nances.
e news has not been all bad. Last Friday, company representatives said during a discus- sion of its latest quarterly report that Pemex had succeeded in stabilising oil production levels in the second quarter of this year. ey noted that crude output had averaged 1.66mn barrels per day (bpd) between April and June of 2019, steady on the gure reported in the rst quar- ter. Additionally, they said that yields were set to rise later in the year, following the launch of new upstream development initiatives at shal- low-water deposits in the Gulf of Mexico.
This is a positive development, given the long-term trend towards decline. (Pemex is currently producing only about 50% of what it did in 2004.) But the improvement was not con- sistent in all areas.
Natural gas production, for example, went
down slightly in the second quarter of this year. 
La-Saga.com
P4
w w w . N E W S B A S E . c o m Week 30 31•July•2019