9 July 2008

There is no Oil to reduce prices

Because output at existing wells declines faster than new discoveries.

Output plummets at huge Mexican oilfield

By Adam Thomson in Mexico City

Published: July 8 2008 00:35 | Last updated: July 8 2008 00:35

Production at Mexico’s Cantarell oil complex, one of the world’s largest, has plummeted by a third in the past year, an indication the country could lose self-sufficiency in oil in the medium term.

Average daily production dropped to slightly more than 1m barrels a day in May compared with more than 1.6m b/d in the same month last year, according to the energy ministry.

Mexico’s total oil production fell about 10 per cent in the past 12 months to 2.79m b/d in May. That was only marginally above April’s output, which was the lowest in a decade.

“This is not a good sign,” said George Baker, head of energia.com, a Houston-based consultancy. “But it does at least strengthen the government’s position that there is an approaching crisis in oil production.”

The centre-right administration of President Felipe Calderón has for months been trying to use the deteriorating oil production figures to persuade Congress that something must be done quickly.

In April it presented legislators with a proposal for more flexibility in the service contracts that Pemex, the state oil company, signs with third parties. Currently, the contracts are narrow in scope and inflexible because Mexico’s constitution prohibits private investment in oil.

There is little optimism that the proposal will survive a slow-moving, entangled legislative debate amid strong resistance from both the main opposition parties.

Many opposition leaders argue the problems stem mainly from the government’s rising dependence on oil income, which has starved Pemex of cash it could use for exploration.

But the government maintains the vast bulk of the country’s reserves lie in deep waters and require technology and knowhow to develop that Pemex does not possess.

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