By Matt Badiali
Saturday, April 10, 2010
"What this means is that we require, in one way or another, the collaboration of other companies on an international level precisely in order to recuperate our levels of production."
From time to time, my job as a resource stock analyst means I get to act as "BS interpreter."
This quote above, uttered by Mexican Energy Minister Georgina Kessel at an international conference a few weeks ago, is a mouthful of government gobbledygook. Here's what she's actually saying... and what it means for your resource portfolio...
Most Americans don't realize it, but Mexico is a major player in global oil production. According to the Energy Information Agency, it was the seventh largest oil-producing country in 2008. Mexico is the U.S.'s second-largest source of imported oil, behind Canada.
You read that correctly: We import more oil from Mexico than we do Saudi Arabia, Iraq, Kuwait, or any other Middle Eastern country. You don't read about it much in the papers, but Mexico is a critical supplier to American drivers.
Now, Mexican oil officials like Georgina Kessel have a problem... one the entire world has: There are no easy barrels left.
...snip...
http://www.dailywealth.com/1323/One-of-the-World-s-Biggest-Oil-Producers-Is-Going-BustMexico's largest oil field, Cantarell, is now in terminal decline. It will take with it major contributions to Mexico's social service programs.
Mexico's Pemex struggles with oil decline
...snip...
The severity of Cantarell's decline, which began accelerating dramatically in 2007, caught Pemex off-guard. In the past two years, the company has raced to catch up, installing equipment such as compressors and turbines to more than triple its capacity to reinject the gas into the rocks 2km beneath the surface of the Gulf of Mexico's azure sea.
But still, all around the Panuco drilling rig, Pemex continues to resort to environmentally unfriendly gas flaring.
Pemex says it is bringing Cantarell under control, noting that the decline had stabilised at 12 per cent a year - a number many analysts find hard to believe.
Cantarell's production peaked seven years ago at 2.2m barrels a day. Today the field struggles to produce a quarter of that.
Stemming Cantarell's decline would not be enough to revitalise Pemex; it has to find new sources of oil. If it fails, Mexico's government faces having to cut its national budget dramatically. That is because Pemex's revenue - a large part of which comes from the sale of Cantarell's oil - makes up 40 per cent of government income. For the government, broadening the country's tax base is not an easy option because so many Mexicans work in the informal economy and pay no taxes at all and politicians are loathe to introduce unpopular consumer taxes.
...snip...
http://www.ft.com/cms/s/0/48f69cf6-3b93-11df-a4c0-00144feabdc0.html12% per year decline? Taking into account accumulated declines, that means no more oil from Mexico in about five years. Where will we get the oil to replace what we get from Mexico? So far, no one really knows.
World oil production is currently declining at a rate of ~4.5% per year and will accelerate over time to as much as 10% per year.
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