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Mexican oil production is a concern for U.S.
Mexicans protesting the propose changes in oil law
NEW ORLEANS
Petroleumworld.com, May 5, 2008
Mexico's oil production is in a dangerously steep decline. Why should that matter to the United States? Because Mexico exports 1.2 million barrels of oil per day to the United States, which is 8 percent of the U.S. supplies.Mexico ranks third behind Canada and Saudi Arabia in exports to the United States. In an already tight oil market it would be difficult for the United States to find another million- plus barrels. And if we could, it would likely come from a shakier supplier.
In a recent televised address, Mexico's President Felipe Calderon warned, "We must act now, because time, and oil, is running out on us." Analysts estimate at the current rate of consumption Mexico's oil production could last 9.2 years and exporting will end in less time.
"Unless something is done quickly to allow Pemex (Petroleos Mexicanos) to operate more as a real oil company, and not as a bureaucratic state-run firm, it will become a marginal exporter in the very short run," says David shields, a Mexico City-based energy analyst and author of two books on Pemex. This would be a national disaster.
Mexico's oil revenues account for 40 percent of its federal budget. For decades Pemex has been the cash cow for each president, providing the revenues for social programs, operating expenses, and government salaries.
The majority of the Pemex revenues go first to union corruption, then to the federal budget and what is left over goes to operate Pemex. Even with revenues from almost $100 oil, Pemex went into the red in 2007, while oil companies around the world reaped record profits.
Mexico nationalized its oil industry in 1938. Taking the oil fields from foreign companies and standing up against foreign businesses was more than just nationalizing the oil industry.
Mexico's largest oil field is in an annual decline rate of 15 percent. Mexico's congress has known for several years the fate they are now facing and have done nothing to prepare for it. The continued rise of high oil prices has disguised the decline in production.
The good news is Mexico's largest potential reserves are believed to be in the deep waters of the Gulf of Mexico. The bad news is Mexico does not have the technology, money or trained personnel to explore in deep water and Mexico's constitution bars Pemex from partnering with foreign oil companies.
Mexico's President Calderon recently introduced legislation that will give Pemex the ability to contract work out to private companies, manage its own revenues and raise cash by issuing bonds that only Mexicans could buy.
Oil expert David Shields said Calderon's energy reform bill is a good start, but falls short of making the seeping changes necessary to set Mexico's ailing state oil company back on track.
Story by Don Briggs from Louisiana Oil and Gas Association
Louisiana Oil and Gas Association 04 1 05 08
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