The latest ministerial report says Mexico could lose 800,000 of the 1.67 m barrels per day of oil it exports by 2012.  Since Mexican oil use is growing by 4.5% per year, new domestic demand could grow by 430,000 bpd through 2012.  This combination of supply fall and internal demand growth could therefore eliminate almost 74% of Mexico’s ability to export oil in five years. 

Such a development would pressure U.S. oil supplies as well as the finances of the Mexican government, possibly putting Mexico’s political stability into question.  The Mexican minister addresses the longer term problem focusing on 2012, as reported below.  He calls for increased deep water exploration and drilling and emphasis on the Chicontopec field.  But aa recognition that an emergency looms in the much shorter term seems to be required.

An opinion piece in the Wall Street Journal of 4/7/08 states that the political will to reform PEMEX is lacking because so many Mexican politicians get payoffs from the present system of tight government control.  It was also based in part on the report below:

Mexico will see oil production decline by roughly 1.8Mb/d by 2021 from existing fields, energy minister Georgina Kessel said.

Crude output last year averaged 2.94Mb/d. Output has fallen consistently over the past three years, preventing state oil firm Pemex from bringing in an additional US$10bn/y in revenues, Kessel said.

Kessel made the announcement at the presentation of the energy ministry (Sener’s) analysis of the energy sector, which was developed in response to debate over a possible energy reform.

The prolific Cantarell field, which accounts for roughly half of Mexico’s crude output, will make up 1.01Mb/d of the decline by 2021, according to the diagnosis. The Ku-Maloob-Zaap asset will decline by 295,000b/d by 2021, with remaining fields accounting for 492,000b/d.

Cantarell will decline by 565,000b/d by 2012, with other fields accounting for a 212,000b/d fall in production.

Currently 83% of proven reserves are in fields either already in a state of decline or nearing their inflection points.

In 2008, 92% of crude production will come from the Cantarell, Ku-Maloob-Zaap, Samaria Luna, Marina Suroeste and Bellota Jujo assets.

MAINTAINING OUTPUT

The energy ministry calls for four measures designed to sustain Mexico’s production platform in the medium term.

First, and of least significance overall, Pemex must improve recovery at abandoned fields or fields on the point of abandonment to add 23,000b/d through 2021.

Second, the company needs increased E&P in the southeast basin. Costs are forecast to be higher than current levels as Pemex does not expect a new giant discovery, such as that of Cantarell. The southeast basin could produce an additional 700,000b/d through 2021.

Third, the development of the Chicontepec field could provide up to 600,000b/d through 2021, up from 30,000b/d currently.

However, due to the field’s low permeability and low pressure, Chicontepec would require 1,000 wells drilled per year to reach the 600,000b/d output.

Such extensive drilling would mean significantly increasing Pemex’s operating capacity. Pemex drilled roughly two-thirds of that number of wells across all its basins in 2007.

Between Chicontepec and the southeast marine basin, Pemex would need to drill a total 17,000 wells through 2021, the diagnosis said.

The fourth measure entails exploiting Mexico’s deepwater potential.

“Even successfully carrying out these two projects, Mexico would have a deficit of around 500,000b/d through 2021; this deficit valued at current prices, would equal more than US$14bn/y. As such, beginning development of deepwater E&P is fundamental,” the analysis says.

The deepwater Gulf of Mexico basin contains more than half of prospective hydrocarbons reserves, or 29.5Bb. However, the company lacks the finances, know-how and technology to venture into large-scale deepwater E&P.

Pemex drilled six wells in water depths of more than 500m in 2004-07, only one of which has sufficient reserves for commercial operation.

As a result, Pemex will require additional deepwater E&P capacity apart from Chicontepec and the southeast marine basin.

“Considering the challenge posed by accessing deepwater fields… Pemex needs to be able to count on the support of companies specialized in the development of various operations in the field,” according to the analysis.

The deepwater Gulf of Mexico basin could provide 500,000b/d of additional production through 2021.

Kessel highlighted that these projects need to be developed simultaneously to put Pemex back on track.

“It’s not about putting deepwater before mature fields. It’s not about putting Chicontepec before the southeast basins. To offset the fall in production, to maintain our production platform, to supply the fuels demanded by the economy and Mexicans, we should act simultaneously on various fronts,” the minister said.

This entry was posted on Monday, April 7th, 2008 at 11:37 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.