This Bloomberg report excerpted below presents stark numbers for the decline in Mexican crude production.  It also notes continuing attacks by MEND on Nigerian production.  News reports in the past week have focused on the apparent deterioration in Mexican civil society as drug gangs eliminate some top officials in Mexico’s federal and state police forces.  So far, Mexican violence is centered on drug gangs’ efforts to secure safe havens for their activities, although there have also been some attacks on the oil and gas infrastructure over the past couple of years.  

Mexico and Nigeria could both be slipping into the category of failed states.  If that trend persists, the implications for global oil and gas supplies would not be good.  The problems of these two countries are important reasons for the rising price of oil, I believe.  They offset, to a large extent, the additional capacity being brought on stream this year and next by Saudi Arabia. 

By Christian Schmollinger and Gavin Evans

May 26 (Bloomberg) — Crude oil rose for a second day in New York, after reaching a record last week, as militant attacks in Nigeria and declining output in Mexico increased the potential for supply disruptions.

The Movement for the Emancipation of the Niger Delta, Nigeria’s main militant group, said it attacked a crude-oil pumping station operated by Royal Dutch Shell Plc. Oil output in Mexico, the third-largest supplier to the U.S., for April fell the most in more than 12 years as flows from its largest field declined, state-owned Petroleos Mexicanos said on May 23.

“People are really responding to longer-term supply issues,” said John Vautrain, vice president at consultants Purvin & Gertz Inc. in Singapore, in an interview with Bloomberg Television. “Every time we hear good news about some big new find somewhere you have to counteract that with the news that there are a couple of million barrels a day disappearing from the market every year just because of natural declines.”

Crude oil for July delivery rose as much as $1.08, or 0.8 percent, to $133.27 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $133.11 at 9:44 a.m. in London.

Futures reached a record $135.09 on May 22 after the dollar posted its biggest weekly decline against the euro since March. Prices have doubled from a year ago and surged 20 percent since the start of the month.

MEND attacked a “major trunk pipeline at Awoba Flow Station” using armed fighters and detonation engineers at 0100 hours today, the group said in an e-mailed statement.

Shell spokeswoman Caroline Wittgen couldn’t immediately be reached for a comment.

MEND Attacks

As much as 164,000 barrels a day of Shell’s oil production had been halted by militant attacks this year, including an assault at a pumping station in Bayelsa state in the Niger Delta on May 2. The company lost an average of 156,000 barrels a day of Nigerian output in the first quarter.

“The market is running a bit scared and that’s propelling prices higher,” said Jonathan Barratt, managing director at Commodity Broking Service Ltd. in Sydney in an interview with Bloomberg Television.

Mexico’s crude oil production fell 13 percent to 2.767 million barrels a day in April, Mexico City-based Pemex, as the company is known, said on its Web site. Output a year earlier was 3.182 million barrels a day. The decline was the largest since October 1995, when output fell 29 percent.

Output at Cantarell, Pemex’s biggest field, fell 33 percent to 1.07 million barrels a day, according to the Energy Ministry. That was the lowest output since March 1996 at the field, which peaked at 2.192 million barrels a day in December 2003 and once accounted for about 60 percent of the company’s output.

Exports fell 14 percent to 1.439 million barrels a day. Pemex has said it will cut exports as output falls so that it can refine more of its own oil.

To contact the reporters on this story: Christian Schmollinger in Singapore at christian.s [Email address: christian.s #AT# bloomberg.net - replace #AT# with @ ]; Gavin Evans in Wellington at gavinevans [Email address: gavinevans #AT# bloomberg.net - replace #AT# with @ ]

Last Updated: May 26, 2008 04:49 EDT

Tags: peak oil energy investments

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