As anyone who follows the oil market knows, production of oil in Mexico, the 3rd largest supplier of oil to the U.S., is falling.  Production from their largest field, Cantarell, is declining at about 16% a year, and growth from two smaller fields, which is currently limiting the slide in total production, is scheduled to peak in 2010.  Without substantial new production from fields not yet developed, Mexico could stop exporting oil at all within five years.  The development of new fields depends on vast new investments being made, which only foreign or private interests could provide, and which the current Mexican administration is trying to arrange.

The Wall Street Journal published an "Outlook" piece today that describes the political difficulties the Calderon government is having in obtaining such investments.   As close observers know, the Mexican Constitution currently forbids private investments in the oil sector, and the Calderon administration is trying to find ways around that.  The Journal piece discusses the two historical roots of that Constitutional obstacle to investment: nationalism and crony capitalism.  Mexico nationalized their oil industry in 1938 because they believed foreign interests that then owned the oil fields were bleeding the public.  The oil nationalization event is still celebrated annually and is a source of pride among the public.  Secondly, the public is leery of private enterprises in general because some privatizations of formerly publicly owned enterprises, such at Telemex, have exercised monopolistic powers to charge high prices and restrain competition to enrich the privileged private owners at the expense of the public.

For both of these reasons, it is looking less likely that the Calderon government will be successful at diluting the control of PEMEX, the government oil monopoly, over the oil sector.   If that turns out to be the case, Mexican oil production may go into a substantial and irreversible slide in only a couple of years. 

When I read about oil production being restrained by the policies of foreign governments like Mexico or Russia or Iraq or Iran, I wonder if the apparent "stupidity" of the policies is not a smoke-screen for "resource nationalism."  That is, perhaps these countries are being "stupid like a fox" in failing to develop their oil resources more rapidly.  After all, the net result is that they will have more oil in the ground when the world truly runs short of oil in a few years.  That’s not a such a bad place for them to be, in purely nationalistic terms.  

Tags: energy investments

This entry was posted on Monday, March 31st, 2008 at 10:39 am and is filed under Mexico, oil supply. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.