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Oil in Mexico - No more

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PostPosted: Wed Aug 02, 2006 4:38 am    Post subject: Oil in Mexico - No more Reply with quote

Mexico's Biggest Oil Field Sees Decline
August 2, 2006; Page A4

MEXICO CITY -- Crude-oil production at Mexico's biggest oil field is falling far more quickly than predicted by the country's state oil monopoly, stoking fears of a precipitous drop in coming years that could further tighten global supplies and squeeze finances in this oil-dependent nation.

Output at Cantarell oil field -- responsible for about six of every 10 barrels Mexico produces -- fell to 1.74 million barrels a day in June from 1.92 barrels in January, according to figures released by Mexico's Energy Ministry. That compares with the official prediction by Petróleos Mexicanos, the state oil company, that production would decline to a daily average of 1.9 million during 2006.

Such a drop is bad news for the global oil market. Thanks mostly to the decline at Cantarell, Mexico's overall crude output fell 4% in June, compared with a year ago, company data show. That will further tighten global supplies at a time when demand is rising, pushing prices ever higher.

Mexico's total crude production in June was 3.3 million barrels a day, and last year it exported about two million barrels a day.

Mexico's decline will complicate U.S. efforts to reduce its dependency on oil from the Middle East. Mexico is typically among the top-three suppliers of crude oil to the U.S. Venezuela, another big regional producer, is having problems with production, too. Last year Mexico supplied roughly 8% of the 20.7 million barrels a day consumed in the U.S.

"If [Cantarell production] collapses, Mexico would cease to be an important crude-oil exporter within two or three years," said David Shields, an oil-industry analyst.

If the decline persists, Mexico would face a big blow to its finances. The country depends on oil sales for about a third of its federal budget. If oil prices were to decline in the next few years, as some analysts say is inevitable, it would be a double blow to Mexico's revenue stream.

The data show that Cantarell, the world's second-biggest field after Ghawar in Saudi Arabia, is living up to what is known within the state oil apparatus as a worst-case scenario, detailed in an internal oil-company report that suggested earlier this year the field's output could fall by nearly 75% by the end of 2008.

Senior officials at Pemex, as the state oil company is known, say such dire predictions aren't likely to bear out. The company has undertaken a range of new measures to slow declines at Cantarell and extract harder-to-get crude. Some of these techniques take many months to implement and therefore aren't reflected in the June data, they say.

Pemex says it has succeeded in postponing declines in the past and may be even more effective in the future as new recovery technologies come on line. The company is hoping to offset the long-term declines at Cantarell by increasing production at other fields and finding new ones.

After borrowing heavily to fund new production and exploration in recent years, however, the results aren't encouraging, with gains in other fields unable to keep pace with the steep decline at Cantarell.

Industry analysts say Mexico likely has untapped reserves deep in the Gulf of Mexico. Pemex is barred by the Mexican constitution, which requires state control of the energy industry, from joining with private oil companies. That means Pemex can't spread around the risk of expensive deep-water exploration or benefit from the more-advanced deep-water expertise of international peers.

Felipe Calderón, who won a narrow victory in the July presidential election, vowed during his campaign to introduce changes that would allow private companies to participate in the energy industry. It is unclear whether he will have the political capital to get these changes through -- or even take office, for that matter. His victory has been contested in court by a left-wing candidate who opposes the oil plan and is leading mass protests across the capital city.
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