The Oil Drum

I thought that these two stories were interesting.  

Mexico, as Khebab has pointed out, is going to have problems with their export capacity.  Today, they are producing about 3.4 mbpd, consuming 1.7 mbpd, and exporting 1.7 mbpd.   Cantarell, producing about 2 mbpd, accounts for more than half of the production.  The 825' oil column in Cantarell is thinning at the rate of about 300' per year, which suggests annual decline rates of as much as 40% per year. But even if we just go with the more optimistic production number in the article below, of about 2.8 mbpd in three years, and assume an increase in consumption to about 2 mbpd, the "optimistic" scenario indicates about a 50% decline in net exports within three years.  The more pessimistic scenario would suggest something in excess of a 75% decline in net exports.

I wonder if the Western oil companies are concerned about Cantarell type declines rates in some of the older Russian oil fields.   According to Lord Browne, Russia offers "good production potential," and he has some Russian production for sale if you want to buy some.  In regard to the "better technology" mantra, the North Sea peaked at the same HL point as the Lower 48, 29 years after the Lower 48 peaked.  

http://seattlepi.nwsource.com/national/1102AP_Mexico_Oil_Riches.html
Monday, June 12, 2006 · Last updated 10:13 a.m. PT

Mexico stands at a crossroads on energy

By MARK STEVENSON
ASSOCIATED PRESS WRITER

Excerpt:

With Mexico's domestic consumption approaching 1.7 million barrels, and Lopez Obrador's plan to use more of Mexico's crude to supply domestic refineries and petrochemical plants, that would leave a lot less for export.

Calderon espouses more focused subsidies, like helping poor families or communities with their energy bills.

"Whoever wins the election will probably put a radical imprint on energy policy," said Mexico City-based industry analyst David Shields. "This election is about ideology. You're voting for someone who's way on the left, or someone who's way on the right."

Lopez Obrador criticizes Fox's administration, saying "the only thing that matters to them is selling more and more crude to foreigners, neglecting exploration and new reserves and above all, abandoning refining and petrochemicals."

One thing that's clear: Business as usual isn't an option anymore.

Shields predicts Mexican oil production could fall from 3.35 million barrels per day to as little as 2.8 million barrels per day within two or three years, if nothing is done.

"The current organization and course of the oil industry in Mexico are unsustainable," George Baker, an industry analyst with energia.com, wrote in a research report.

http://www.forbes.com/2006/06/11/browne-bp-oil-cx_pm_0611autofacesscan1.html
BP's Browne Sees Cheap Oil Again
Forbes.com Staff

Excerpt:

BP's boss acknowledged that oil prices were likely to stay at that level in the short term, but he foresaw oil falling as low as $25 in the long term as new sources of supply come into production.

Oil companies were finding large new deposits in the Caspian Sea, he noted, while Russia and western Africa offered good production potential. Oil companies were also getting more efficient at extracting from their reserves, he said.

TNK/BP are selling Udmurtneft because they are old mature fields and per chance it might help them get a deal on Kovytka.  Remember when negotiating in Russia it is wise to make links to previously unconnected deals.

I am not sure that the political risk has changed since either of these parties did their deals.  It is harder to do business in Russia today than it was 3 years ago - but that is not political risk it is greater control over what was previously uncontrolled.  The pendulum has swung too far in favour of control - as markets do....