Hoarding is exactly what the government is doing right now by filling the SPR, and frankly it's the best thing that could happen. It drives prices up. High prices encourage demand destruction. They also finance new well development. The hoarded oil gives us a buffer to fall back on once shortages become more prevalent. High prices are what we need in order to adapt to what's coming, and the sooner they happen, the better.
MEXICO CITY – Mexico's huge state-owned oil company may be facing a steep decline in output that would further tighten global oil supply and add to global woes over high oil prices.
The potential decline faced by Petroleos Mexicanos, or Pemex, also could undermine U.S. efforts to reduce dependence on Middle East oil, and complicate Mexican politics and financial stability.
An internal study reviewed by The Wall Street Journal shows water and gas are encroaching more quickly than expected in Cantarell, Mexico's biggest oil field, and might cause output to drop precipitously over the next few years. Currently, Cantarell produces two million barrels of oil a day, or six of every 10 barrels produced by Mexico. It is the world's second-biggest-producing field after Saudi Arabia's Ghawar.
The worst two scenarios suggest a drastic decline in output to 875,000 barrels a day by the end of 2007 and to just 520,000 a day by the end of 2008. If such projections turn out to be correct, Mexico's overall oil exports would decline by about one million barrels a day -- equal to about 63% of its daily crude exports to the U.S. -- from its current 1.8 million.
Last edited by DantesPeak on Thu Feb 09, 2006 10:32 am; edited 1 time in total
Mexico & NAFTA Report
Copyright 2006 Latin American Newsletters
January 17, 2006
THE OIL INDUSTRY: Boom to bust?
The next government will have to make some difficult decisions about the oil industry. The decline in the country's main oilfield, Cantarell, is much more rapid than had been forecast. Under current projections, in 2008, the field will be producing only a quarter of what it has been producing over the past five years.
Over the past 20 years, Cantarell has been the world's fourth biggest oil field, producing over 2m bpd. Cantarell has supplied around two-thirds of the daily production of Petróleos Mexicanos, the state-owned oil monopoly. Mexico is the world's sixth biggest oil producer. The problem is that it is producing much more oil than it is finding. Ranked by reserves, Mexico comes 14th in the world league.
The latest projection from Petróleos Mexicanos Exploración y Producción is that in 2008 Cantarell's production will average only 700,000bpd while in 2009 output will drop to 520,000bpd. The concern for policymakers is that if this happens, Mexico will stop being an oil exporter. Currently the country produces about 3.3m bpd and exports about 1.8m bpd.
There are major differences between experts about how much oil Mexico has. What experts do agree on is that production from Cantarell is set to plummet. The big question is whether Mexico can find new oil reserves to stop its overall production collapsing. If Mexico's overall production collapses there will be major implications for government spending. In 2005 the government enjoyed windfall oil revenues of M$100bn (US$10bn), according to Alejandro Werner, head of the planning unit at the finance ministry.
Posted: Thu Feb 09, 2006 11:21 am Post subject: Re: Cantarell Oil Production to "drop precipitously&quo
25% ! ! ! (as in, 75% decline by 2008)
my God. that's a lot of decline.
i'm wondering if there's any info on why so precipitous a decline ... have they been using water injection, unusually aggressively over-pumping ... are there geographic details, e.g. an oil pool geometry that offers minimal resistance to pumping, allowing the oil to be sucked out (sort of like natural gas), a "low-impedance" oil-well.
Posted: Thu Feb 09, 2006 11:28 am Post subject: Re: Cantarell Oil Production to "drop precipitously&quo
This is serious. If this story has seen the daylight than they must know that they have a major problem on their hands. To slow the water you can will need to reduce rates and/or the interval from where you produce. Also shutting in wells may help.
In a nut shell, You Will Need to Lower the Production Rates !!! _________________ Men argue, nature acts !
Voltaire
"...In the absence of the gold standard, there is no way to protect savings from confiscation through inflation."
Joined: Feb 09, 2006 Posts: 381 Location: Venezuela
Posted: Thu Feb 09, 2006 12:19 pm Post subject: Re: Cantarell Oil Production to "drop precipitously&quo
When I worked in the S. Mexican oil market (onshore) back in the late 90's, I seem to remember that Pemex was building a huge nitrogen injection project for the Canterell field.
I found that odd that since it had been my personal experience that nitrogen was typically one of the worst 'contaminants' that could be injected into a pressurized hydrocarbon system......CO2 yes, but N2? No.
Anyway, don't know what ever became of that project.
Joined: Feb 09, 2006 Posts: 381 Location: Venezuela
Posted: Thu Feb 09, 2006 12:32 pm Post subject: Re: Cantarell Oil Production to "drop precipitously&
CNBC just finished interviewing a couple of Latin America energy analysts. One said that the leading candidate for President in July's election has said that he'll not change Mexico's long-standing policy of not allowing investment by foreign exploration and production companies.
Again, my experience in Mexico is somewhat dated, but I seem to recall that there was a move in that direction back in the late 90's when some foreign E & P companies were thinking that they'd be able to participate in some of the gas plays (like Burgos) along the border with Texas.
If Mexico has any 'elephants' left to discover, they're probably in deep water GOM, and I don't believe they've got the money, expertise, or desire to tackle those plays right now.
Joined: Dec 02, 2005 Posts: 6245 Location: Oil-addicted Southern Californucopia
Posted: Thu Feb 09, 2006 12:58 pm Post subject: Re: Cantarell Oil Production to "drop precipitously&quo
Connect the dots, folks:
A sudden, super-steep decline of production, and the loss of oil export revenue, will precipitate severe economic hardship in Mexico. We all know what that will mean, don't we? There will be a huge increase in illegal immigration north, into the U.S.
Is that the "immigration emergency" KBR is talking about in their PR release about being awarded the detention camp contract?
The Bush administration knows what's coming. They're experts on Peak Oil, but of course they're keeping very quiet about it. They're making all sorts of moves to prepare, and the building of 400 million bucks worth of concentration camps for Mexican illegals is just one of them...
Posted: Thu Feb 09, 2006 1:00 pm Post subject: Re: Cantarell Oil Production to "drop precipitously&quo
Cantarell has one of the worlds largest nitrogen injection programs. They've kept reservoir pressure up that way, along with water. As noted often, these programs do not add to additional production, they simply advance the curve so the decline rates at the end are much steeper. Look at what's happened to Oman!
The maquiladoras in Mexico run on cheap energy. If you think we have a displacement and imigration problem now, wait until Mexico has to somehow pay to import energy and pay first world prices for it. We are about to watch a massive economic collape take place on our Southern border.
There are unexploited Deep GOM areas. Mexico will have to liberalize their paternalistic approach to foreign investment to make those feasible, however, and it will take years to bring on stream if at all.
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