2008 August 24 Sunday
Mexico Oil Production Decline Continues

Mexico's oil production is past peak and continues its sharp decline.

LOS ANGELES, Aug. 23 -- Production from Mexico's Cantarell oil field fell 36% over the past year, reducing the country's overall oil production and creating a sharp decline in its exports.

"New fields aren't coming on line fast enough to replace Cantarell," said Jesus Reyes Heroles, general director of Petroleos Mexicanos (Pemex).

Reyes' remarks coincided with an announcement by Pemex that in the first 7 months of 2008 the state firm produced an average of 2.84 million b/d of oil, down 10% from the same period in 2007.

Exports declined at a 16.3% rate which is steeper than production. Total revenue surged on higher oil prices. But eventually exports will decline so far that higher prices won't compensate for lower exports. This spells big trouble for Mexico's government and economy. The Pemex oil company in Mexico is owned by the government. Mexico's government relies on oil for a third of its tax revenue.

The biggest vulnerability posed by declining oil production lies with government revenue. Total oil-related revenue equaled just over one-third of total government revenue in 2007. Fiscal revenues from the oil sector exceeded 8 percent of GDP in 2007, almost equaling the 9 percent of GDP that comes from income tax and value-added tax. Total tax revenues from the non-oil sectors of the economy were below 11 percent of GDP in 2007, low by regional standards. The failure to build a stronger non-oil tax base has led Mexican governments to depend heavily on Pemex's resources, thereby depleting the company's ability to modernize and undertake more exploration and production.

Mexico is going to be hit by much higher internal fuel prices, less government, revenue, and less export revenue. We need a barrier wall along the entire US-Mexico border to keep out the Mexicans who will experience declining living standards.

Petroleum geologist Jeffrey "westexas" Brown expects Mexico will stop exporting oil by 2014.

Venezuela is showing a long term net export decline, and Mexico is on track to approach zero net oil exports by 2014. In October, 2007 these two countries accounted for more than 20% of total US petroleum (crude + product) imports.

For other countries when their oil fields peaked oil exports declined more rapidly than oil production. Jeffrey Brown and other analysts who have looked at this pattern have found it so consistently that they expect Mexico, Russia, Venezuela, and other big producers of today to follow the same pattern.

Share |      By Randall Parker at 2008 August 24 12:40 PM  Economics Energy

Ned said at August 25, 2008 9:55 AM:

Pemex is a case study in how a country should not handle its oil reserves. A state monopoly, Pemex gives about 60% of its revenues to the Mexican government. This amounted to about 42% of the federal budget last year, which leaves Pemex with insufficient revenues for exploration and new production. Also, Mexico lacks sufficient refineries and ships crude oil to Houston, where it is refined into gasoline and shipped back to Mexico. Pemex has been used as a state-sponsored employment program and has too many employees for the amount of oil it produces. And, of course, this being Mexico, there's lots of corruption - for example, some of the independently franchised Pemex stations have been accused of selling "short" liters. Mexican oil production is almost certainly on the down side of Hubbert's peak. However, privatization of Pemex is a third rail of Mexican politics, even though many politicians will admit, off the record, that it needs to take place. Since Mexico is so dependent on oil revenues, declines in production or a fall in world prices could be disastrous for the Mexican economy. This would, as you say, cause a flood of illegal immigration.

c.o. jones said at August 25, 2008 10:32 AM:

The flood of illegal immigration that would be caused by Pemex' collapse (or any other crisis) would set up an interesting circumstance.

Consider how little our government has done in the past to stop illegal immigration. The Mexican government and its ruling elites seem to take it as a given that we're going to always allow illegal immigration as a safety valve of sorts. And their assumption so far has been correct. I doubt our government would lift a finger to stop any large scale exodus; in fact I am sure they would openly tell us that we have no choice but to accept it because "a stable Mexico is in our nation's best interest."

But what if the ordinary citizens of our country decided otherwise, and groups like the Minutemen took matters into their own hands, no longer content just to be observers? Even if the various citizens' groups did nothing but observe, the border would become a much more hazardous place, and at the very least we would be treated to the spectacle of American citizens being arrested by their own government while the Mexicans flooded in. At that point, all it would take would be an accidental shooting for the entire situation to descend into chaos - not that it isn't headed that way already.

Anon said at August 25, 2008 11:53 AM:

c.o. jones,
We are headed for some serious violence in the late, great US of A. "Our" gov't won't do a thing either except arrest white Americans for daring to defend themselves. People should be prepared for trouble as it is coming.

Kenelm Digby said at August 26, 2008 3:57 AM:

Strange, I always thought that people were Mexico's biggest export.
I guess that Americans will have to see mor human flesh from Mexico coming their way (possibly to push handcarts and pull rickshaws as supernumeraries do in wage screwed India,)than barrels of the black stuff.

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