Mexican oil production at a crossroads
As newly-elected conservative Mexican President Felipe Calderón and U.S. President George W. Bush searched in Mexico City for some kind of grand bargain on oil and immigration this past March, the governments of Alberta and Mexico signed an energy cooperation agreement that could well position Alberta’s private and public sectors at the forefront of efforts to revitalize Mexico’s energy industry – particularly if both Calderón and Bush deliver on their joint commitments
The liberalization of Mexico’s nationalized oil sector is more than just a sectoral or economic concern: its success or failure presents deep implications for both the political stability of Mexico and the economic health of its powerful neighbor to the north. So how to stave off failure? . From Washington, D.C., Paul Michael Wihbey provides this take on what the agreement could mean for struggling Mexican and ever-growing Albertan O&G alike.
Mexico, whose oil industry was expropriated in 1938, produces 3.3 million barrels per day (bpd) of crude, ranking it fifth in the world. It exports 1.8 million bpd, mostly to the U.S. After Canada, it is the second ranked exporter to the U.S. ahead of Saudi Arabia; the 2006 sales of state monopoly Petróleos Mexicanos (PEMEX) reached $97 billion, $79 billion of which accounted for almost 40 per cent of the federal government’s budget. This all suggests good times, but many experts fear a disaster looming, a disaster that sees Mexico becoming a net oil importer within three to five years followed by an array of economic, social and political problems that could destabilize the country.
And because Mexico’s economy is driven on oil production and revenues, a serious downturn in either would, in addition to posing serious domestic consequences for Mexico, also negatively impact U.S. energy security, oil prices and continuing political tribulations over the flood of 250,000 illegal immigrants each year into the United States.
A crude state
Senator Francisco Labastida of the Institutional Revolutionary Party (PRI), defeated by Vicente Fox in the 2000 presidential elections, concluded in his comprehensive study, “Petróleo,” that for every 100 barrels of oil extracted in Mexico, only 26 barrels go into the strategic reserves. “Oil production is rapidly going to exhaust this natural resource, part of the nation’s heritage, which is irresponsible,” writes Labastida. “PEMEX is bankrupt, not because it is an inefficient company, but because the state has squeezed out its resources.”
PEMEX’s biggest field, Cantarell (production: c. 2 mbd), in the shallow waters of the gulf, is one of the world’s richest, at one time accounting for about 60 per cent of Mexico’s oil production. It has since gone into a sharp decline, falling 13.5 per cent last year and likely another 15 per cent this year. David Shields, an oil industry consultant in Mexico City, expects output at Cantarell to drop an additional 600,000 bpd by the end of 2007. Though PEMEX will likely increase output by 200,000 bpd at other fields, according to Shields the country will be left with a net decline of 400,000 bpd by year’s end and daily exports of less than 1.4 million.
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