Mexico's Fading Oil Output Crimps Exports

[nmap]

As the article points out, a major source of income for Mexico is fading, which may imply broad economic problems for Mexico. I cannot help wondering if this will worsen their present instability.

In addition, as Mexico exports less, our own energy costs could increase.

LINK


Budget Shortfall Is Likely to Worsen; Major Field Plunges

MEXICO CITY -- Mexico's oil output is falling faster than expected, increasing the chance that the country will lose its status as a major oil exporter in coming years and face a worsening budget shortfall.

Output at state-owned oil monopoly Petróleos Mexicanos's offshore field Cantarell, once the world's second-largest oil field, has plunged to 500,000 barrels a day from its peak of 2.1 million in 2005.

"I don't recall seeing anything in the industry as dramatic as Cantarell," says Mark Thurber, assistant director for research at the Program on Energy and Sustainable Development at Stanford University.

Cantarell's slide has pushed Mexico's overall oil output down. Shrinking oil exports are costing Mexico roughly $14 billion a year -- bad news for a country that relies on oil exports to pay for nearly 40% of its annual government budget. That shortfall, aggravated by the weaker overall economy, has caused the government to cut spending this year and propose a growing budget deficit for next year.

Ratings agency Standard & Poor's revised its outlook for Mexico's sovereign-credit rating to negative in May, citing the decline in oil output as a factor. "There are several elements that all come together," says Lisa Schineller, an S&P analyst. "A low tax base, a dependence on oil for its budget ... lower oil output, a limited outlook for economic growth, and a dependence on the U.S. market."

The shortfall has underscored the need for broad tax reform to reduce dependence on oil money, she says. But the solutions -- ending Pemex's monopoly and raising taxes -- are tough for politicians to swallow. Without progress on tax reform, Mexico's credit rating will likely be downgraded a notch before year-end, Ms. Schineller says.

Mexican President Felipe Calderón has called for more energy sector reforms. BP PLC's big oil strike in U.S. waters off the Gulf of Mexico, announced last week, should be a "wake-up call," the president said in a radio interview. "It's very likely we have similar [oil] wealth, but we don't have ... the technology or the organizational and operational capacity to do it by ourselves."

Carlos Morales, head of Pemex's exploration and production division, says Cantarell is expected to stabilize at 400,000 barrels a day. The company has offset some of Cantarell's decline by raising output at other fields, notably offshore field Ku-Maloob-Zaap -- now Mexico's biggest field -- which produces roughly 800,000 barrels a day. In coming years, "when Ku-Maloob-Zaap goes into decline, we have enough other projects to raise overall output slightly," Mr. Morales says.

David Shields, an independent oil consultant in Mexico City who warned about Cantarell's impending collapse years ago, says he is dismayed at the lack of accountability at Pemex. "Production at Cantarell is almost being allowed to run out without any decent explanation" of the technical reasons, he said.

Mr. Morales says Pemex relied too heavily on Cantarell, but is trying to fix that by stepping up exploration and focusing on a greater number of smaller fields. "Diversification is the name of the game," he says.

One big bet is Chicontepec, a massive onshore field discovered in the 1920s. It has resisted exploitation because it is made up of small pockets of oil spread out over thousands of square miles. So far, though, output at the field has disappointed.

A better long-term bet, say analysts, are oil deposits in the deep waters of theZ Gulf of Mexico. Pemex, however, lacks the technology to operate in deep water. Last year, Mexico passed a law giving the company greater flexibility to hire foreign oil companies as contractors. But expected legal challenges from nationalist lawmakers have kept Pemex from even publishing the proposed contracts -- a process that could take the rest of this year. Even then, many foreign companies may not bite. Oil from deep waters takes about seven years to develop, and many analysts say Mexico is doing too little, too late.

[nmap]

Looks like time for an update. Notice that this will reduce exports, hence income for the Government of Mexico. With a growing narco-insurgency, interesting effects may develop.


LINK

Mexico's Pemex struggles with oil decline
By Carola Hoyos
Published: March 30 2010 03:00 | Last updated: March 30 2010 03:00
The tongues of fire soaring into the sky high above the platforms dotting the horizon across Mexico's Cantarell oil field give away the problems plaguing Pemex, the national oil company

The flames, the product of burning unwanted gas, are a visible sign that Cantarell, once the world's third-biggest oilfield, is ageing and its oil production declining.

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.

Realising Pemex's predicament, Congress in 2008 passed reforms to give Pemex the potential ability to reward a contractor for each barrel of oil it produced once legal hurdles were cleared while also giving it a little more freedom from political interference.

But many analysts and energy executives say those reforms are not enough to entice international oil companies to help Pemex find and produce more oil. Pemex needs that help especially badly to search for oil in its uncharted deep waters and to develop its tricky Chicontepec field, which in spite of huge drilling efforts still pumps only 30,000 barrels a day, far short of expectations.

David Shields, an independent energy analyst based in Mexico City, says: "The biggest challenge Pemex faces is finding more oil reserves and proving oil reserves that can guarantee production over the next 20 to 30 years."

He adds: "Pemex also has the problem that Mexican law does not allow for joint ventures. It does not allow for the kind of work that needs to be done and the kind of agreements and incentives that deep water production require. Recent reforms definitely have not gone far enough."

Carlos Morales, head of Pemex's exploration and production company, agrees that Pemex - and Mexico - would benefit from a tax regime attractive enough to persuade oil companies to accept the risk of exploring Mexico's deeper waters.

"It will benefit the country to bring in additional capacities to help Pemex, keeping Pemex as the one that has the mandate in maximising the value," he said in an interview, adding: "That certainly will help to speed up the process and maximise the value."

But he sees only a "possibility" that the government's reforms will attract international oil companies.

It would be up to the government to make additional reforms if Pemex were unable to improve its performance. "If they do not see any results from Pemex, people have the freedom and Congress will necessarily respond to the position of the people by making additional changes. But that's a decision for them. I am the operator."

Mr Shields sees little chance of political change. He paints a bleak picture of Mexico's future. "We are exporting more than about 1m barrels a day, which is much less than before, and that is a number that is going to slowly move down towards zero over the next 10 years," he says.

[Baht Dog]

Originally Posted by nmap

Looks like time for an update. Notice that this will reduce exports, hence income for the Government of Mexico. With a growing narco-insurgency, interesting effects may develop.


[

Mr Shields sees little chance of political change. He paints a bleak picture of Mexico's future. "We are exporting more than about 1m barrels a day, which is much less than before, and that is a number that is going to slowly move down towards zero over the next 10 years," he says.

There can be no doubt. And the term "narco-insurgency" is of course correct. Couple this with the fact that they can't even maintain reliable police forces to the minimum UN standard in metropolitan areas of 2.8 police officers per 1000 citizens, coupled with the rampant corruption of the government at all levels, poverty and many other factors - and it's a very serious potential powder keg.

The police are paid very low wages. They are ordered to cooperate with the Narco traffickers - or die. Sometimes their family too. They stand to make a bit more to a lot more money by being involved in the drug trade. At some point a lot of them end up dead or in prison. A lot of them run away and quit.

45,000 Mexican Armed Forces soldiers, mostly from the Army, have deserted in the last five years, 90% of them Privates. Mexico has a military desertion rate of about 8%-10% per year according to some estimates. And believe it or not, the desertion rate has actually gone down from ten years ago or so. Slightly improved pay and conditions are cited. Could be economic as well. They need a job.

If the global economy continues to shrink, the Cartels will grow even stronger. With the kind of money involved, no matter how many they take down, it simply leaves a vacuum that others will fill.

As Mexican oil diminishes, more people are likely to turn to the drug trade. It's estimated that up to $40 billion a year is generated in the Mexican drug trade and potentially millions of people involved in some way, shape or form in it.


There seems to be a demographic of jobless people in the US and around the world for that matter - that seem to always somehow be able to come up with money for drugs. Usually at the expense of honest citizens.

I have read opinions that claim that really only the Mexican Marines are largely reliable anymore and []comparatively[/] un-corrupted FWIW.



Anyone who wants to get a good understanding on how severe the problem is with maintaining proper police forces down there and other problems should read and comprehend this article.

http://insightcrime.org/insight-late...l-battle-rages

[mojaveman]

I could be wrong but I thought that not long ago Mexico signed over a substantial amount of it's oil production income to the U.S. because they owed us so much money.

[nmap]

Originally Posted by Baht Dog

If the global economy continues to shrink, the Cartels will grow even stronger. With the kind of money involved, no matter how many they take down, it simply leaves a vacuum that others will fill.

Quite likely, it will continue to shrink. Thus, not only will the Cartels become stronger, but governments everywhere will become weaker.

LINK

[GratefulCitizen]

Our decreasing level of net imports will increasingly come from Canada.

http://www.eia.gov/dnav/pet/hist/Lea...s=wttntus2&f=4
http://www.eia.gov/dnav/pet/hist/Lea...mttimusmx1&f=a
http://www.eia.gov/dnav/pet/hist/Lea...mttimusca1&f=a

[Baht Dog]

Originally Posted by GratefulCitizen

Our decreasing level of net imports will increasingly come from Canada.

http://www.eia.gov/dnav/pet/hist/Lea...s=wttntus2&f=4
http://www.eia.gov/dnav/pet/hist/Lea...mttimusmx1&f=a
http://www.eia.gov/dnav/pet/hist/Lea...mttimusca1&f=a

The charts you cite show increasing Canadian oil imports and a strong correlating relative decrease in Mexican imports. Net imports of oil as it relates to US problems is probably the discussion of another topic, as the thread topic appears to be about Mexico's declining oil output and revenue and how it primarily effects the stability of Mexico.

EIA, Wiki (an aggregator of sources) and many and other sources clearly indicating that Mexican oil output is in comparatively rapid decline. Google "Mexican oil output decline dwindling."


The worse it gets, the more likely it will exacerbate and destabilize an already dangerously unstable situation in Mexico.

The US government and military (and concerned Patriots) are very concerned about Mexico devolving and are making dire projections via ongoing reports and analysis that Mexico could collapse over the next 25 years. I don't think it will even take that long. The situation is very grim and I don't see anything on the horizon that is going to improve it as the global economy continues to spiral downward. What happens if the global economy is far worse in ten years?

[nmap]

Originally Posted by Baht Dog

I don't think it will even take that long. The situation is very grim and I don't see anything on the horizon that is going to improve it as the global economy continues to spiral downward. What happens if the global economy is far worse in ten years?

I agree with you. IMO, a 25 year time-frame is wildly optimistic. The link has data specific to Mexico and its oil production. LINK

Notice this about exports:

“Right now we are exporting more than about 1m barrels a day, which is much less than before, and that is a number that is going to slowly move down towards zero over the next 10 years,” he said.

LINK

In addition, PEMEX contributes close to 40% of the national budget.

LINK

Our policy makers might be wise to ask themselves what they will do if tens of millions of people in Central America decide to start walking north.

[GratefulCitizen]

Originally Posted by Baht Dog

The charts you cite show increasing Canadian oil imports and a strong correlating relative decrease in Mexican imports. Net imports of oil as it relates to US problems is probably the discussion of another topic, as the thread topic appears to be about Mexico's declining oil output and revenue and how it primarily effects the stability of Mexico.

EIA, Wiki (an aggregator of sources) and many and other sources clearly indicating that Mexican oil output is in comparatively rapid decline. Google "Mexican oil output decline dwindling."


The worse it gets, the more likely it will exacerbate and destabilize an already dangerously unstable situation in Mexico.

The US government and military (and concerned Patriots) are very concerned about Mexico devolving and are making dire projections via ongoing reports and analysis that Mexico could collapse over the next 25 years. I don't think it will even take that long. The situation is very grim and I don't see anything on the horizon that is going to improve it as the global economy continues to spiral downward. What happens if the global economy is far worse in ten years?

Mexico is competing with Canada for a share of the diminishing US market.
As Canada's pruduction costs decline, Mexico can't compete.

Mexico has the smaller economy which depends heavily on oil exports to the US.
Variations of economic behavior in Mexico have a minor effect on the US, but variations in the economic behavior of the US have a major effect the other way.

The decline in oil production on a field has a large economic component; it's not just limited by physical constraints.
Oil will not be produced if it can't be sold for a profit.

[Baht Dog]

Originally Posted by GratefulCitizen

Mexico is competing with Canada for a share of the diminishing US market.
As Canada's pruduction costs decline, Mexico can't compete.

Mexico has the smaller economy which depends heavily on oil exports to the US.
Variations of economic behavior in Mexico have a minor effect on the US, but variations in the economic behavior of the US have a major effect the other way.

The decline in oil production on a field has a large economic component; it's not just limited by physical constraints.
Oil will not be produced if it can't be sold for a profit.

Exactly. So in keeping with the premise of the thread originator's thoughts about the fading Mexican oil supply (the cause in this context is largely immaterial to the threat context) - and the cause-and-effect-induced-threat the fading revenue has on the stability of the Mexican State, there is widespread concern across a broad spectrum of analyst circles regarding the impact this declining oil revenue will have on the stability of Mexico's government and the nation as a whole. Especially in the context of having to deal with a hyper-violent narco-insurgency.

So, back to the topic of “Mexico’s Fading Oil Output” and what it means for the worsening naro-insurgency situation in Mexico. Canadian oil output is immaterial in the final analysis of the real and present danger in Mexico due to their fading revenue stream from oil. Canadian output is not a factor that can or will be changed in order to help Mexico. It is what it is. These things have a synergistic effect. And of course the effect of situation for the United States cannot be ignored.

With Mexico being a comparatively poor nation, with low-paid government personnel, military and LEO's to begin with, it's going to make it harder for them to deal with the problem. Bribery is systemic.

The border nation to our south in the throes of a now hyper-violent narco-insurgency that is getting worse. It is expanding not only across America but extending its outreach on a global basis with international crime syndicates to include Islamo-based organizations such as the Iranian backed Hezbola, European, Asian and African drug lords and organizations. Recently testimony before the U.S. House Committee on Foreign Affairs laid this out in detail for anyone who cares to read it http://foreignaffairs.house.gov/112/fara101211.pdf There is also a video of the briefing for anyone who is into wonk on a subject of what is really amounting to a 5th column threat.

There is no escaping the fact that fading Mexican oil output is a major concern adding fuel to the potential perfect storm of narco-insurgency occurring in Mexico. We won't be able to ignore it for all that much longer. Especially as the situation in the United States deteriorates economically.

Who is going to pony up the money to cover for the decreasing revenue that the Mexican government needs to fight a determined and robust narco-insurgency? The broke United States?

Despite some success with arrests and reduction of naro-traffickers through killings, IMO, the odds of success are getting better by the day that the narco-insurgency is "winning" this multi-billion dollar trade in the long run as Mexico struggles to deal with it. Despite the billions in aid the US has sent. Of course there is always the chunks of American taxpayer cash lost down black holes whenever this occurs.