Trouble South of the Border -- Mexico's Oil Production
Posted by Dave Cohen on July 11, 2006 - 1:58am
Topic: Demand/Consumption
Tags: Andrés Manuel López Obrador, cantarell, exports, felipe calderon, mexico, oil production, pemex, presidential elections, vincente fox [list all tags]
In April of this year, Mexico's president Vincente Fox announced a major new discovery in the Gulf of Mexico by the state-owned oil company Petroleos Mexicanos (PEMEX). This new field, announced a scant few months before Mexico's national presidential elections, was said to contain a potential URR of 10 Gb (billion barrels) of oil.
I had wanted to do a story on PEMEX and Mexican oil production. What was the story? I knew from the discoveries trend that finding a field of this size is now rare, a statistical outlier. So, I waited.
On July 5th, I got my answer and my patience was rewarded. The Energy Bulletin, quoting from the Oil & Gas Journal (OGJ) announced Fox-hailed deepwater well a modest gas find
HOUSTON -- Noxal-1, a deepwater Gulf of Mexico well trumpeted in March by Mexican President Vicente Fox as being a major oil discovery, appears to be a modest gas find.This story gives some detail about the current state of Mexican oil production and its possible effects both south of the Rio Grande and here in the United States.Speaking on Mar. 14 from the drilling rig in 935 m of water 63 miles off Coatzacoalcos, Fox said the then as-yet-untested well had the potential to produce 10 billion bbl of oil (OGJ, Apr. 17, 2006, p. 35).
However, after the well operated by state-owned Petroleos Mexicanos reached a total depth of 4,000 m, the fourth interval tested has flowed 9 MMcfd of gas from a reserve estimated at 245 bcf, said IHS Energy, Houston.
Mexican Production & Exports -- Click to Enlarge
And from that EIA document
Mexico is the fifth-largest producer of oil in the world. The country produced an average of 3.78 million barrels per day (bbl/d) of oil during 2005, a 1.3 percent decline from 2004.However, the situation may be going downhill fast. In this shocking statement reported by the Dallas Morning News issued prior to the recent presidential election, Mexico's oil model is under pressure, we learn thatDuring the first nine months of 2005, Mexico exported 1.79 million bbl/d of crude oil. Of this amount, 88 percent went to the United States, followed by 11 percent to Europe. Mexico is consistently one of the top three exporters of crude oil to the United States, along with Canada and Saudi Arabia.
The rust staining the storage tanks and distillation towers of the giant Miguel Hidalgo Refinery suggests what the balance sheets for Petróleos Mexicanos confirm: a company hemorrhaging money.Ominous indeed. In fact, downright scary.At a recent reunion of retired Pemex executives, former chief financial officer Ernesto Marcos recalled, a colleague urged that "the next president be told as soon as possible that we may soon not have enough oil for our own requirements and none for exports."
That's an ominous forecast for Mexico's economy and for the United States, which relies on Mexico for 8 percent of its oil.
PEMEX Background Information -- A Little History
If you are interested, this fascinating document, sourced from the US Library of Congress, details the history of Mexican oil production. For our purposes today, we note that the petroluem industry was nationalized in 1938 by President Lazaro Cardenas, who is now regarded as something of a national hero in Mexico. Since that time, foreign investment has been forbidden. To make a long story short, today PEMEX is actually losing money and heavily in debt despite oil prices hovering near $75/barrel. From the the Dallas Morning News again.Yet the Mexican government has taken so much of Pemex's revenue (61 percent) and saddled it with so much debt (more than $75 billion, including pension obligations) that the company has had a negative net worth since 2002.The reasons for this are straightforward. As the Dallas Morning News articles notes, the Mexican government siphons off PEMEX profits to pay for other services. In addition, PEMEX is itself a corrupt state institution. "In Pemex, there is no transparency, nobody watches over the contracts. For starters, they ask for a 10 percent (bribe) off the top of the price. When anyone complains, they are repressed. This is the way business is done here" from Mexico's oil bonanza starts to dry up.In May, the company reported net income of $700 million in the first quarter but a loss of $6.75 billion for 2005.
As a result of these conditions, production infrastructure is deteriorating and subject to world supply shortages and competition. In addition, experienced oil field workers are in short supply. Back at the end of March of this year, TOD published From an Insider: Rig Prices, Rig Depth, and How to Get a Job from which I quote.
Someone who works for Pemex has said they have a large backlog of undrilled wells due to a manpower shortage at the rig sites, especially those near Reynosa and along their border with the US....Things are a mess. As if this weren't enough, there was recently an explosion last July in Benito Juarez II on antiquated pipelines.Pemex is also having trouble securing steel pipe (they used to get it from Korea) due to Chinese demand and their (Chinese) willingness to pay more than double what the Mexicans originally contracted for...
I thought it was important to relay what our open borders are doing to Texans and to the oil drilling business on BOTH sides of the border. Again, so many things are rearing their ugly heads around the country it's hard to keep track of them!!
The Recent Presidential Election
The recent election pitting the "conservative" candidate Felipe Calderon (35.88%) and the "leftist" candidate Andres Manuel Lopez Obrador (35.31%) was not primarily over oil but perhaps it should have been. The election is being contested by Obrador. Generally speaking, Calderon espoused the position that Mexican production should be increased through allowing foreign investment to support more E&P and increasing exports. Obrador wants to maintain the current PEMEX monopoly and "turn inward", using the oil to produce refined products for domestic consumption or export. However, throughout his entire tenure, current president Vincente Fox tried to reform the PEMEX state monopoly and allow foreign investment without success. And would it make any difference? I repeat the warning by our unnamed PEMEX executive at the top for emphasis: "the next president [should] be told as soon as possible that we may soon not have enough oil for our own requirements and none for exports".The Consequences?
This story is not meant to be comprehensive. My goal here is to touch on the main issues. But here's my take on what's happening.If the anticipated decline in Mexico's oil production should occur in the next few years, it appears that the consequences could be
- A possible collapse of the Mexican economy, which is already shaky. If some of you think we have an illegal immigration problem now, think again. It's not hard to imagine many more refugees from Mexico attempting to enter the United States.
- The problem in the US would be two-fold. The refugee problem just mentioned and the fact that we've lost a large percentage of our oil imports in a world where there is no spare capacity. This could precipitate a crisis which, as far as I know, no one has anticipated or is prepared to deal with.
"I told you so" won't be a very comforting statement from those of us whom have warned of the coming peril. For the most passionate of critics and nonbelievers I only say that they will be "surprised" in a way that I am not. It won't make life any easier but I won't being dealing with my own state of "surprise" as they will. And I will be in action in ways that they haven't begun to think of quite yet.
FWIW EU is tightening its borders, USA following suit is just a matter of time.
In other words, U.S. economy will suffer before Mexico's. And the jobs that are bringing Mexicans here (construction, food service, etc.) will be among the first to go.
Even if there are fewer jobs available here, that won't prevent a mass exodus to this country by those desparate for work.
In the arroyos, they lay a thick pad of concrete, and sink 4" X 6" steel posts into it, in an offset pattern which allows runoff and small animals to pass, but which is too close together for humans. And on the wide plains, they augment the 8 strand barbed wire (what's left of it) with steel railroad rails, welded up to stand at sternum level to prevent drive throughs. There is a dirt road on this side, and one on that side, and the Border Patrol tries to shadow the coyotes driving vans packed with people on the other side. And the biggest "improvement" is stadium lighting for several miles (and growing by 1/2 mile at a clip), to light it up and allow agents to track and catch some portion of the immigrants.
I see no evidence of the "triple fence" Congress is talking about.
I figure people will continue to pour through until employment stops growing and this country starts deporting illegals. If there are no jobs, immigrants will stop coming.
How about this take:
Such a union, by refusing to join NAFTA, would wreck Bilderberg's long-standing goal of expanding NAFTA throughout the Western Hemisphere and evolving it into an "American Union" patterned after the European Union. The dollar would become the common currency of the American Union.
And the key part:
The dollar would become the common currency of the American Union.
http://www.thetruthseeker.co.uk/article.asp?ID=4641
Nafta Plus
scary stuff! and this all started last August in the Waco Summit, (and would have been the topic of MSM) just before hurricane Katrina hit. But Katrina stole the thunder, and it was all brushed under the carpet.
This is why (as I see it) the administration has done nothing to secure the borders. They already know how this is going to play out. Oh, we can moan and groan, put up a Minute Man Project, but in the end, the politicians have it all wrapped up. We have no say/control on how this can be stopped. As far as the politicians are concerned, this Nafta Plus WILL happen!
Geez, we live in interesting times!
Speaking of paranoia.....or is it fact? Obrador just released videos that he claims prove vote tampering:
http://www.nytimes.com/2006/07/11/world/americas/11mexico.html
I hope Mexico can find a way to settle the rising conflict peacefully.
Bob Shaw in Phx,Az Are Humans Smarter than Yeast?
Here is the latest update from the Washington Post:
AMLO unveils his Ammo
http://blog.washingtonpost.com/mexicovotes/2006/07/amlo_unveils_his_ammo.html
---------------------------
Shortly before midnight Monday, lawyers for the left-leaning former mayor submitted a formal challenge of nearly 900 pages and called on Mexico's electoral tribunal (similar to the Supreme Court) to demand a recount of every single one of the 41 million votes cast July 2.
If that doesn't happen, Mexico could see an "insurrection," according to one of López Obrador's top aides.
"The warning by Gerardo Fernandez Noroña, the campaign's chief spokesman, was the most explicit high-level threat that the challenger's struggle to overturn his razor-thin defeat could erupt in civil disobedience and violence," reports the Los Angeles Times, which had the benefit of late deadlines. "Fernandez said that if the seven-judge Federal Electoral Tribunal upheld the result without a full recount and allowed Calderón to take office, "we are not going to let him govern."
-------------------------
Mexico has historically been prone to revolutions.
Bob Shaw in Phx,Az Are Humans Smarter than Yeast?
Latest update from CounterPunch:
http://www.counterpunch.org/ross07122006.html
------------------------
History is What Comes Next
Mexico Splits in Half: the Election Hits the Streets
A full week after the most viciously contested presidential election in its modern history, a Florida-sized fraud looms over the Mexican landscape and the nation has been divided almost exactly in half along political, economic, geographical and racial lines.
Mexico has always been two lands "Illusionary Mexico" and "Profound Mexico" is how sociologist Guillermo Bonfils described the great divide between rich and poor. But now, should it be allowed to stand, right-winger Felipe Calderon's severely questioned 243.000 vote victory over left-wing populist Andres Manuel Lopez Obrador (AMLO) will split the country exactly in half between the industrial north and the impoverished, highly indigenous south with each winning 16 states although the southern states won by Lopez Obrador, who also won Mexico City by a million votes, constitute 54% of the population.
Moreover, the disputed election pits an indignant Indian and mestizo underclass that believes AMLO was swindled out of the presidency by electoral fraud against a wealthy white conservative minority that controls the nation's media, its banks, and apparently, the Federal Electoral Institute (IFE), Mexico's maximum electoral authorities. Lopez Obrador charges the IFE and its president Luis Carlos Ugalde with orchestrating Calderon's uncertain triumph.
In Mexico, the past has equal value with the present and the memory of what came before can sometimes be what comes next. These are history-making moments south of the Rio Bravo. North Americans need to pay attention.
--------------------------------------
AMLO is encouraging the largest protest march in Mexico's history this Sunday July 16, and is also threatening to have all PRD officials exit their govt. positions setting off a constitutional crisis.
Buckle-up folks--this could get ugly.
Bob Shaw in Phx,Az Are Humans Smarter than Yeast?
Looks like those detention facilities (an undisclosed number at undisclosed locations) that the Bush regime is paying $385 million for Halliburton KBR to build are going to come in handy after all once Mexico collapses economically and the cross-border flood begins.
And if that doesn't come to pass, those detention facilities won't go to waste. They can always be used as a gulag of mini Guantánamos for dealing with native-born political dissidents.
I will be eagerly anticipating your post of Ghawar and Cantarell.
Two questions. An article in BW about a year ago claimed that Mexico's reserves were only ~16 billion barrels. Is that right? It strikes me as a very low number given their current level of production.
Secondly, any ideas as to why Fox announced a 10 GB oil find without any confirmation? Was this some sort of Mexican "October surprise," or something else?
Apparently so in order to support the candidacy of Calderon.
I am working with Jeffrey (Westexas) on the Cantarell/Ghawar post. We will be trying to put something comprehensive together. Perhaps it will be done in the next week or so. As to Mexico's recoverable reserves, I expect that to be addressed in that forthcoming post.
best, Dave
In that part of West Texas most of the Latinos don't speak spanish. I speak more than 95% and my language skills will just about let me order a meal or ask for a restroom without snickering. My conclusion is that Haliburton and Big Dog drilling were seeking documentationaly challenged workers for land drilling in Tejas.
Some of this is because most oil field folks see the handwriting on the wall and aren't encouraging their kids to become oil field trash, and some because of the rapid expansion of land drilling jobs. But isn't it strange?
This thing is really scary. I am especially worring about the sorry state of the Mexican government + PEMEX cabal. A small persuation is that those 61% loyalties rule out the bancrupcy option in the medium term, because the govt will do anything to keep its cash cow alive. But the disastrous management of government owned and corrupted state companies is a thing I am very well aware of and I would rather see PEMEX bleeded to dead. If history is an example, once oil production starts to decline the PEMEX will collapse with it - leaving hordes of "privatisators" to finish off what is left.
The problem is in fact in the Mexican govt, not necessary in the form of property. See Venezuella and Russia for properly managed or/and controlled by the state oil companies.
The future is, of course, hazy and uncertain, not fixed, probably impossible to see. But maybe I, maybe you, maybe one or two others here can peer into it and occasionally glimpse where it might be in a few months or even a few years hence.
If a little decline in Cantarell etc really scares you then best get a good supply of disposable nappies (despite their eco-unfriendliness) because the scares of the next 2 or 3 years are way off your scale.
On a totally unrelated and trivial thing, I was researching motor neuron disease and somehow happened on this potential cause of death:
http://www.herballove.com/library/resource/overmas/fatal.asp
Curious about what might be called 'excessive masturbation' I visited this page:
http://www.herballove.com/solution/survey/overmas.asp
Brief experimentation with the parameters (though I left the health condition at 'very healthy') resulted in the following conclusions:
If you are under 28, 100x per week (probably more) is healthy
At my age of 52 even 1x per week is 'Slightly Over Masturbated'
...and if I reach 13x per week it says 'Too much'
IMO the site, as well as being a blatant misinformation and selling site, is written by a load of tossers.
Looking below I note from memmel: "Cantrell should start collapse at some point in the next two years" - it is already in significant decline (plenty of news and discussion on this since november 2005), the only question is how steep. As is Burgan (Kuwait), Da Qing (China), and maybe Ghawar (SA). Those are the 4 largest oil fields so far and probably ever to be discovered on this planet. I do agree that the picture should be a lot clearer within 2 years, if it is significantly clearer much sooner than that the news will not be good.
Yes, Cherenkov, those camps, and some that were built earlier, may be called into use in a couple or 3 years. You are not scaremongering.
I think fear is the natural response for preparing for the future. Personally I expected or hoped that PO is several years away and the declines would be moderate. I find this Mexican situation particualarly alarming because of the following:
- It comes in a moment when some people are waking, few are preparing but nobody is truly prepared
- It comes in a moment when we have a strongly militarist cabal holding the power in Washington
- It happens in a neighbouring country which besides the potential for flooding US with immigrants is viewed by the hawks here as an almost US territory. BTW does Mexico develop WMD? Let them prove they don't.
- The critical resource we have differentiating the best with the worst scenarious is time, and it turns out we don't have that much.
In addition the sorry state of the Mexican oil industry convinces me that they are very likely to experience a total production collapse which inreases all these risks mentioned above. So, if you don't mind I do think there are reasons to be worried about.Reading between the lines of your four reasons above it would seem that what you most fear is the current US government, that is probably very wise ;)
There is a lot of wisdom to it as many times bad things tend to happen at the same time due to some covert and nasty reason which has been hanging around for a long time without anybody taking it seriously.
Now in this case I see many things that seem doomed to happen simultanously or almost simultanously:
- North sea collapsing (already a fact)
- Cantarrel entering terminal decline
- Ghawar most certainly following in
- Tar sand, heavy oil projections proved unrealistic
- NG in North America on the brink of collapse
etc etc...Well in another world one might say that this should be a pure bad luck we have those arriving almost at the same time, but I hardly believe coincidences - for me the underlying reason that has been hanging around is that simple human greed, causing us to overproduce and overexhaust our non-renewable resources. It is hardly a surprise it all comes down at the same time if everybody has been driven by that same motive.
Now consider what will happen if all those strings tear up in the next 2-3 or even 5 years. This is hardly a timeframe allowing anything rational as a mitigation response and I can see the superpowers drawing out their guns and the worst of all possible scenarios coming true.
North sea collapsing (already a fact)
Cantarrel entering terminal decline
Ghawar most certainly following in
Tar sand, heavy oil projections proved unrealistic
NG in North America on the brink of collapse
etc etc...
Are these ingredients for a perfect storm?
I expect to see declines, but not a collapse in North American NG production. Many new wells are "long & slow" recovery, Tight gas, coal bed methane, depleted wells that keep leaking a bit of NG. Plus some new fields (Encana and Nova Scotia came to an agreement on a new offshore field recently).
So declines, yes. Collapse, no.
A major program to install solar hot water heaters (in almost all new buildings and tax credits for existing) plus massive wind investments (reduce water heating & electric useage) would make a larger difference. Add some supplimental solar space heating and no problem.
And LNG imports may not meet plans, but they will increase.
Best,
Matt
Mexico peaks and declines rapidly, no exports, where will the imports come from? Not to worry! The US loses about 8% of it's imports. No problem! The Mexican economy is propped up by siphoned off revenues from PEMEX. Those revenues are lost. Who cares? Some Mexicans suffer? Not my problem! Refugees in the US? They'll mow my lawn for peanuts!
What, me worry?
On the other hand, the decline of Mexican oil production to the point where they are a net importer, given that PEMEX revenues subsidize their government programs and economy, is one of the more realistic and scariest scenarios I can think of in the near term future, 2 to 3 years out. I agree that worse things could happen during this period but this crisis is just staring us in the face. And as an American, it hits rather close to home. The problem should not be minimized for any reason.
Apologies to Agric but he should not take an extreme position in order to downplay the magnitude of this problem.
Even if the global peak was now and the decline rate in conventional and non-conventional oil was as high as 5% we humans could change our ways radically and things could turn out pretty OK.
Cantarell is just a relatively small glitch compared with others coming soon. Peak oil is a big problem, humanity on a global scale has never faced the problem of a reducing supply of energy. It will probably break present economic systems and more besides.
But peak oil is not the real problem, that's we humans: the way we think, act, feel. We will change or we will directly or indirectly kill one another until the supply of energy and resources is in balance with the survivors' perceived needs.
Just a quick warning again--have you bought a used scooter to protect yourself in case of a sudden oil shock? Don't wait until a used scooter costs $6,000 or more, and a new one might set you back $10,000 until production ramps up. Recall my post where the leading component of Zimbabwean inflation was bicycles. As Jay Hanson warns: Be a NOAH, build an ARK!
Bob Shaw in Phx,AZ Are Humans Smarter than Yeast?
What do you think: I've been mulling over the idea of a business 'personal energy conservation'. Part of it - alternatve transportation, mainly electric bicycles. I think there is a limited market for these, but a market nonetheless. I don't want to sell cars, I mainly want to educate people across a broad spectrum of possibilities, and facilitate Powerdown in our suburbia/SUV world. Compact fluorescents ALONE could make a huge difference.
I haven't even decided for-profit vs. non-profit. Investors vs. grant money. Both seem to have advantages. Obviously, all of us here agree there is HUGE potential. Buy a lot of stock/inventory ( electric bikes ) NOW? Your post re. 'buy scooters now' made me think... That's my feeling, too. It seems like TS is really begining to HTF. Kuwait, Mexico, Saudi Arabia... I'm busy 'Working for the Man' thru August, and am feeling right now that that's almost too long to wait - Fall -to act on this...
I share these ideas with people and they look at me like I'm talking about aliens... When it happens people are going to be SO UNPREPARED.
I've been thinking about your idea of Pacific NW people 'sponsoring' desert SW people... It doesn't have a lot of support up here...(I'm living in Portland, OR, home of the 'cheapest energy in the nation' according to recent reports about GIANT Google and Microsoft search engine 'farms' going in up here)
However, when times become desperate, desperate actions will ensue...
Surf now, think later...
- become a surfing instructor, then
- branch out to selling surf boards and windsurfers, next
- sell sailboats and electric bikes.
I think it is a good idea to follow your bliss.