2009 August 23 Sunday
Mexico Oil Production Hits 7.8% Yearly Decline Rate

Another reason why the US needs bigger barriers on its southern border with Mexico:

Aug. 21 (Bloomberg) -- Petroleos Mexicanos, the state-owned oil company, said oil output in July fell 7.8 percent to 2.561 million barrels a day as production from its Cantarell field kept sinking.

Mexico is a few years away from becoming a net oil importer. Currently Mexico is one of the United States' biggest oil suppliers. Not for long.

The Mexican federal government is going to lose its biggest funding source as oil production declines.

Falling oil production poses a big threat to the Mexican government's finances, which rely on oil taxes to fund nearly 40 percent of the federal budget.

Petroleum geologist Jeffrey "westexas" Brown says since 2004 Mexico's production has declined on average 4.7% per year but net exports have declined 13.5% per year. This fits with Brown's Export Land Model where internal consumption growth of oil exporters causes their exports to decline much more rapidly than their production.

Canada has a lot of oil in its tar sands in Alberta and will continue to export oil for many years to come. US oil production will decline. International oil prices will go up as high as needed to continue demand destruction. The cost of substitutes will determine how much our living standards decline.

Share |      By Randall Parker at 2009 August 23 04:58 PM  Economics Energy

miles said at August 24, 2009 5:15 PM:

There has been a huge oil strike in Brazil.

From the Associated Press article:

"But since the national oil company Petroleo Brasileiro SA, or Petrobras, discovered the massive Tupi field off the coast of Rio de Janeiro two years ago estimated to hold 5 to 8 billion barrels it is the development of oil fields that has gone into overdrive.

Thirty years ago, more than 85 percent of Brazil's oil came from foreign sources. Today, it is a net exporter.

There have been a series of other discoveries since Tupi each lying at least 115 miles (185 kilometers) offshore, more than a mile below the ocean's surface and under another 2.5 miles (4 kilometers) of earth and salt. Estimates of the entire area's recoverable oil range between *50 BILLION and 100 BILLION barrels."

This is the largest oil discovery in the Western Hemisphere in 30 years. I hope this can buy us a few years to find something else workable. Its good news nonetheless, for us and Brazil.

Engineer-Poet said at August 25, 2009 3:22 PM:

100 billion barrels is about 3 years of world consumption, even if it is 100% economically recoverable (yeah, right).  It may make Brazil wealthy and change the timing and geopolitics a bit, but the ultimate menu of options is unchanged.

Mexico must be unable to satisfy its contractual obligations, because it is buying oil from Brazil.  When Mexico has to buy oil, that comes out of the same pot of money it uses to subsidize domestic gasoline prices.  This means PEMEX will go broke quite rapidly.  What happens next?

  • Mexican gas rises to ~$2.00/gallon overnight (followed by riots?).
  • Mexican gas becomes impossible to obtain at the official price (followed by black-market sales of the available supply... and riots?).
  • Mexico allows the international oil giants to produce oil on Mexican territory... with or without changing the Mexican constitution to allow it.
  • Mexico goes into the Marxist camp to curry favor and free oil from Hugo Chavez... while he has it.
  • Other (specify).

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