The Oil Drum

(Repromoted due to today's explosions in Pemex's pipelines and JHK's story and link to us today...originally posted 7/12/07)

In my annual new years predictions, I said that the most significant, and surprising, development of 2007 would be the collapse of both Mexico’s economy and its very existence as a viable Nation-State. While there hasn’t been a spectacular, single event confirming my prediction, there has been a steady erosion on all fronts—with five months left in the year, I’m not yet willing to push back my prediction of Mexico’s “collapse” to 2008. The decline of the Mexican Nation-State is a bellwether for the massively complex network of geopolitical influences sometimes termed above ground factors. It provides some insight into how symptoms of oil scarcity already being felt in poorer parts of the world will increasingly spill over into our own back yard…

UPDATE: After I wrote this story (July 7th), things took a serious turn for the worse with a series of rebel attacks on Mexican oil infrastructure: Bloomberg, Forbes (research credit: Dantes Peak).

Scroll down for the 5:00p and 11:50p EDT updates.

Hurricane Dean became a Category 5 storm last night with winds reaching 165 mph and reaching a low pressure of 909 mb (as of 2:15a EDT; Katrina was 920 mb and Camille 909 mb). Landfall occurred early yesterday morning with a second landfall occurring some time today. This is an historic hurricane by any standard.

Why this matters: If there were Cat2 winds in that area, we could have been talking about around 2.5 million barrels per day of Mexico's supply capacity being shut in for a while, and some of that shut in for an extended amount of time. Around 1.5 mbpd of that capacity is exported to the US (of the 20.5 mbpd the US uses, and the 85mbpd the world uses, each day). There are also some questions about the resilience of refineries and flow lines in the area of the second landfall.

Update (Khebab, 11:50 EDT):

HURRICANE DEAN ADVISORY NUMBER 35A
...DEAN IS MOVING BETWEEN THE WEST AND WEST-NORTHWEST NEAR 20 MPH...32KM/HR...AND THIS GENERAL MOTION IS EXPECTED DURING THE NEXT 24 HOURS. ON THE FORECAST TRACK...DEAN IS EXPECTED TO BE VERY NEAR THE COAST OF CENTRAL MEXICO DURING THE DAY WEDNESDAY. MAXIMUM SUSTAINED WINDS REMAIN NEAR 80 MPH...130 KM/HR...WITH HIGHER GUSTS. DEAN IS A CATEGORY ONE HURRICANE ON THE SAFFIR-SIMPSON SCALE. AN AIR FORCE PLANE IS CURRENTLY APPROACHING DEAN. SOME RE-STRENGTHENING IS FORECAST DURING THE NEXT 24 HOURS.

 HURRICANE FORCE WINDS EXTEND OUTWARD UP TO 35 MILES...55 KM...FROM THE CENTER...AND TROPICAL STORM FORCE WINDS EXTEND OUTWARD UP TO 140 MILES...220 KM. ESTIMATED MINIMUM CENTRAL PRESSURE IS 970 MB...

Cantarell and KMZ oil complex, 50-knots wind speed probabilities (NHC, forecast #35). Click to Enlarge.

Refinery position, 50-knots wind speed probabilities (NHC, forecast #35). Click to Enlarge.

More under the fold.

UPDATE: NEW UPDATED POST ON TOP OF FRONT PAGE AS OF 1:20am EDT, 8/21

This post is a collection of different Google Earth based mashups of various weather data, oil infrastructure overlays and excellent impact maps established by Chuck Watson (see also PG's post for a list of resources on Mexico oil infrastructure). The list of Google Earth files (kml/kmz files) used in this post can be find on my blog. There is now a good likelihood that Dean will impact significantly the Cantarell and the KMZ oil complex which constitute the backbone of the Mexican production.

I will try to update this post during the day as soon as new forecasts are available.

UPDATE, NEW POST UP TOP AS OF 1:20 AM EDT, 8/21

We know that many of the models have Dean going into the Bay of Campeche. But what does that mean for supply and production?

Well, if the current forecast holds we could be talking about 2.5 million barrels per day of supply capacity being shut in for a while, and some of that for an extended amount of time. Can that matter when the US consumes about 21 million barrels per day (and the world consumes 85 mbpd)? Yes.

Especially when there isn't "slack" supply to be brought to market. That is what "peak oil" is about.

The markets aren't reacting yet. Do they know something we don't know? Maybe.

But what do we actually know about Mexico and its supply and infrastructure?

Under the fold (click "there's more" below), I am going to try to bring together some of our information we have gleaned to this point. I also encourage you to deliver news tips, forecasts, insights, and other links in the comment thread below.

UPDATE: PEMEX is shutting down ~140 rigs and moving 13,000+ workers on land. Cantarell + Ku-Maloob-Zaap account for 66% of the total oil production of PEMEX in June 2007. Cantarell alone is 47%.

Folks, thanks for your great efforts in this thread. There's a lot of cool stuff down there! Now, if we just knew where Dean was going...so, continue linking to maps (esp. of Cantarell/Jack/Yucatan, but Texas and LA too), oil maps, NG maps, LNG stations, refinery maps, pipeline maps, shipping lanes, rig maps, news stories, weather, track predictions, strategic resources, and all that other stuff in this comment thread. Then I'll go through and start aggregating those for what looks more and more like it will be a very busy week next week. Ideas or assistance are always welcome. (New post on Dean as of 20:50 EDT 8/19 up top.)

Following on from Khebab's posts (Jan 2007 and July 2006) I wanted to put some production geology flesh on the bones of Mexican oil production. The main points I want to make are:

1. Forecast production decline of 14% per annum in Cantarell sounds alarming but it is in fact the result of planned reservoir management.
2. The forecast decline of Cantarell is due in part to the diversion of nitrogen injection from Cantarell to the neighbouring Ku-Maloob-Zaap (KMZ) complex of fields. Production at KMZ is forecast to rise to around 800 MBD and this will partly offset production falls at Cantarell.
3. Cantarell / Mexican production is predominantly heavy crude, and it is postulated that any production declines in Mexico may be met by additoinal production of Saudi Arabian heavy crude forward to 2012.
4. Notwithstanding point 3, Mexican oil production decline means that 4 out of 5 major OECD producers are now in decline (Norway, UK, USA and Mexico), leaving only Canada with growing production and this presents the OECD with a growing problem of energy security.
5. The Hubbert Linearisation (HL) for Mexico reflects reservoir management (gas lift and nitrogen injection) and new field developments but the interpretation remains equivocal. A brief description is given of why Pemex have used gas lift and nitrogen injection to boost production at Cantarell.

Last year, I expressed my concerns about the eventual impact of a rapid collapse of Cantarell on Mexico's oil production (story here). The last production numbers from PEMEX seems to confirm the rapid decline of Cantarell as well as the inability of the Mexican to rapidly bring new production online. The Wall Street Journal (thanks to Jerôme) published an article on Cantarell last week:

The virtual collapse at Cantarell -- the world's second-biggest oilfield in terms of output at the start of last year -- is unfolding much faster than projections from Mexico's state-run oil giant Petroleos Mexicanos, or Pemex. Cantarell's daily output fell to 1.5 million barrels in December compared to 1.99 million barrels in January, according to figures from the Mexican Energy Ministry.

[Update: PEMEX has just put out a press release this morning (thanks Nate!) saying that its crude oil production rose to 3.153 million barrels per day in January, up 6% from December, as it may have fixed a few of technical problems at Cantarell (source). Still, this last estimate put Mexico right back on the low logistic curve on Figure 5 below, so even with this news the decline is still quite apparent.]

Mark Sawusch has just pointed out the story in the LA Times today, indicating that, based on performance figures through May, it appears that Cantarell has started to go.

Production at Cantarell, the world's second-largest oil complex, in the shallow gulf waters off the shore of Mexico's southern Campeche state, averaged just over 1.8 million barrels a day in May, according to the most recent government figures. That's a 7% drop from the first of the year and the lowest monthly output since July 2005, when Hurricane Emily forced the evacuation of thousands of oil workers from the region. . . . . . . Pemex predicted that the field will produce an average of 1.9 million barrels a day in 2006, a modest 6% drop from 2005, followed by double-digit annual declines that would reduce average production to 1.4 million barrels daily in 2008.

Other studies aren't so optimistic. Seawater is threatening to swamp the wells of Cantarell as the field's pressure diminishes, a debilitating symptom of old age that makes it tougher to extract the remaining oil. Leaked internal reports of Pemex's own worst-case scenarios published in Mexican newspapers show production plummeting to about 520,000 barrels a day by the end of 2008 -- a 71% free-fall from May levels in less than three years.

Mexico City energy analyst David Shields said the swift drop over the first five months of 2006, and conversations with Pemex insiders have convinced him that prospects at Cantarell are worse than officials will admit publicly.

While not unexpected, since Khebab just wrote on this last week it is the confirmation of the bad news we have been anticipating. (See also Glenn Morton's piece).

In 2005, Cantarell produced more than 60% of Mexico's oil production. Therefore, Cantarell can be considered as the "Ghawar" of Mexico. As we can see on Fig. 1, Cantarell's output doubled within a few years thanks to Nitrogen injection. However, the oilfield production has started to decline rapidly since 2004:

Fig. 1- Cantarell Production (source: PEMEX)

We are proposing to analyze the Mexican production based on two separate Hubbert Linearizations. The resulting production decline is much more important than the decline forecasted by the application of one Hubbert Linearization on the total profile.

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.

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.

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.