Monday, June 23, 2008

Mexican Oil Decline Cont.

As noted here before Mexican oil production, which was the 3rd largest producer for the U.S. is in significant decline. Here is more info from Peak Opportunities as to why the downward slope gets slipperier:

"Update on Mexican Production, Exports
The May 5, 2008 issue of the Oil & Gas Journal included the following articles:

Mexico imports more gasoline as oil production drops

* Gasoline imports rose to 367,000 bbls per day in March 2008 (6.5 % increase from February).
* Oil production declined in the first quarter of 2008 to 2.91 MMBO/D.
* And this shocker: "Mexico's premier Cantarell field produced 1.15 MMBO/D in March 2008 ..." Note that this is below the year end rate we projected in our last post, shown below.

Mexico to reduce oil exports to US in 2008

(Didn't take long for our March "prophecy" to be manifest.)

* "Mexico will reduce its crude exports to the US by an average of 184,000 BO/D throughout 2008, a situation that could continue for 2 years longer ..." The latter, quite an understatement!
* "... original plan for exports in 2008 envisioned some 1.678 MMBO/D ..."
* "... US EIA earlier this month predicted a 13.2 % shortfall of imports from Mexico during the current fiscal year. According to EIA figures, Mexico exported 1.533 MMBO/D to the US in 2007."
* "Based on its December 2007 Short-Term Energy Outlook, EIA forecast Mexico would produce 3.52 MMBO/D in 2007 and 3.32 MMBO/D in 2008." It looks like the EIA's forecast for 2008, done in December 2007, is off by some 410,000 BO/D - for the first quarter of 2008! You'd think they could get a little closer than that!

To refresh your memory, Mexico nationalized oil in 1938. A Constitutional provision was created that prohibited ownership of oil and gas reserves by anyone other than the Mexican government. Mexico and Mexicans take great pride in their nationalism regarding their oil resources. Pemex is the national oil company which are operates Mexico's oil and gas projects.

Unfortunately, some of Mexico's largest remaining reserves likely exist in a "deepwater" (water depths greater than 1300') area in the Gulf of Mexico. And despite the fact that Pemex employs some very intelligent folks, they don't have the years of experience in research, development, engineering and construction of deepwater drilling and production projects.

Previously, it was believed that Pemex could rely on the world's largest, most capable service companies - Schlumberger and Halliburton - in order to provide everything needed for deepwater exploration and production. However, Schlumberger and Halliburton cannot even do this. Deepwater exploration and production is the realm of Shell Offshore, ExxonMobil, ChevronTexaco, BP and just a few others. To give one an idea of what is required, a deepwater project can cost several billion dollars, and each well can cost $20 - $50 million. And ExxonMobil invests $200 million dollars per year in just researching deepwater technologies.

Now, none of the the companies listed above desire to risk billions of dollars if they don't get a share of the oil and gas that might be found. Their shareholders insist on this! But the current Mexican Constitution won't allow it. Talks have been held, followed by intense protests, led by the former mayor of Mexico City and defeated Presidential candidate, Andres Manuel Lopez Obrador. It doesn't look good for the development of Mexican deepwater areas - but anything could happen.

On the other hand, to give you an idea of the scope of the problem with the dwindling giant oilfields like Cantarell, take a look at Shell's Perdido project, which was in the news in early June. Perdido will be anchored not far from Mexican deepwater areas, in 8000' of water. It is costing billions, has taken years to construct and when in place, it will produce 100,000 barrels of oil per day.

That is about one-third of what Cantarell LOST in only 3 months, from December 2007 through March 2008! Getting the picture about Peak Oil?"

Many do not get the picture but suffice it to say there is a major piece missing which I and others refer to as the "Ever Receding Horizon", in other words as the price of energy continues to go up the associated costs do as well. What this translates into is ever increasing prices for development that are never figured into costs that will inevitably occur.

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