Reluctantly I’m going to briefly cover Mexico today. Your RSS newsreader and your Bloomberg however are already, no doubt, filled up with reports from Mexico’s Flu Zone. Or Quake Zone. Or both. Instead, I lightly suggest you turn your attention away from these acute conditions, to something more chronic: the relentless crash in Mexico’s oil production.
On Tuesday of last week quarterly production data was released by PEMEX. In the last several years, I cannot actually recall a single forecast by PEMEX that was not undercut later by worse than predicted production data. Last week was no different. But what’s concerning is that PEMEX has truly made an effort, starting last year, to get ahead of the dramatic declines at Cantarell. They have of course tried to soften the blow by claiming that Mexico could bring production back up again, through the development of newer fields. As I explained in my early January post on Mexico, that is highly unlikely. Despite the best diplomatic efforts by Georgina Kessel, Mexico’s Energy Secretary, to put a good face on a very worrying situation. Essentially, PEMEX–and the Mexican Government–have been trying to allay concerns by forecasting that new production from Ku-Maloob-Zaap (KMZ) would counter the spectacular falls from Cantarell. While KMZ has indeed been producing nicely, it’s simply not enough to negate Mexico’s oil production collapse path. When your largest field peaks, generally, you have peaked. And Mexico is now a testament to this rule.
Mexican oil production fell 7.8 percent in the first quarter of 2009 to 2.667 million barrels per day. This means that production kept on falling right through February and March, as January’s production had already been recorded at 2.685 Mb/day. While it’s not impossible that through an unusual set of circumstances–say economic collapse that shuts production down to very low levels for some time–that Mexican production could rise back up briefly and touch previous high levels, it is unlikely. Besides, an outlier month or two back towards 3 Mb/day is not really what the Energy Ministry has in mind, in their cheery outlook for 2015. They are talking sustained production at 3 Mb/day. That is not going to happen.
In general, it is nothing less than astonishing that Mexico’s oil production collapse is not one of the biggest stories of the decade, especially for the United States. The trajectory here is on pace to take Mexico’s output from 3.4 Mb/day as recently as early 2005, to 2.4 Mb/day perhaps as soon as this Fall. That is not only a huge percentage for Mexico, but it’s a large percentage of total North American supply. If you believe as I do that geography is going to reassert itself in the years ahead, these declines are fated to unleash an even greater impact.
Photo: Hans Li: Olmec Head, Monument Number 1, La Venta Museum, Villahermosa, Mexico, 1992. Iris photographic black and white print, 36 x 48 inches, edition of 5. Copyright Hans Li 1994. See: The Ancient Ones, available for purchase at amazon.com