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http://home.entouch.net/dmd/mexbrickwall.htm
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Visitors to these pages since
12-29-97
This month's AAPG Explorer had an interesting article on doing
business in Mexico. It had a fascinating, and fearful statement by a major player in the Mexican oil
industry. Luis Ramirez Corzo, the Director-general of
exploration and production for Petroleros Mexiconos (Pemex) looked at his country's condition and
said:
“Production from Cantarell will begin to decline in 2006, and the drop-off will be
brutal—14 percent a year, according to Ramirez.” David Brown, “Politics Cloud Mexico’s
Promises,” AAPG Explorer, Oct. 2004, p. 16
Matthew Shaw Latin
America energy analyst for Wood Mackenzie.
“When you put the numbers together, it looks like the production in Mexico is going to
decline over the next few years, and the decline is going to be quite steep,’ he said.
“This situation has long set off alarms inside Pemex. But the rest of Mexico doesn’t see
the scope of the coming challenge, according to Shaw.
‘I don’t think the public in general understands that they’re about to hit a brick
wall,’ he observed.” David Brown, “Politics Cloud Mexico’s Promises,” AAPG Explorer, Oct.
2004, p. 16
How steep is the coming brick wall? Well, as discussed on another page http://home.entouch.net/dmd/cantarell.htm , Cantarell is producing 2.1 million barrels per day. Mexico as a whole produces 3.7 million barrels per day. What will the future production of Mexico look like when Cantarell begins a 14% per year decline? Assuming that Cantarell maintains 2.1 million barrels per day through 2004 and 2005 and then declines 14% each year thereafter, and assuming that the rest of Mexico's production declines at a 5% rate. Here is what the base production will look like:
1995 3.065
1996 3.277
1997 3.410
1998 3.499
1999 3.343
2000 3.450
2001 3.560
2002 3.585
2003 3.789
2004 3.800
2005 3.800
2006 3.421
2007 3.087
2008 2.793
2009 2.533
2010 2.303
2011 2.099
2012 1.918
2013 1.756
2014 1.612
2015 1.483
2016 1.367
Now, the base case presumes that no more oil will be put on line. That is always false. So, what can we expect from Mexico? Mexico has one of the bet potential deepwater areas of the world, and it is largely untouched. And it is largely undrilled, even today. Given the coming decline, PEMEX will be forced to invest lots of money in the deep water unless they are willing to accept a million barrels per day drop in production by 2008. If they start exploring the deepwater in 2007 (probably the best-case scenario), it will be 2010-2011 before anything can come online (once again, at breakneck speed). Let's put the US deepwater production on top of the rest of the Mexican production beginning in 2011 and see what that does to the decline. This means we add
2011 .151 2012 .198 2013 .297 2014 .436 2015 .617 2016 .743 2016 .850
The new decline looks like:
2004 3.800
2005 3.800
2006 3.421
2007 3.087
2008 2.793
2009 2.533
2010 2.303
2011 2.250
2012 2.116
2013 2.053
2014 2.048
2015 2.099
2016 2.109
Basically, opening the southern Gulf of Mexico Deepwater will do no more than temporarily slow the decline, producing a new plateau from 2011 and beyond. But the reality is that even in the best case scenario Mexico will have lost 1.5 million barrels per day of production. This is what it looks like graphically
What does this represent? It is nearly 2% of current world production. The loss of that production will keep the upward pressure on prices It is scenarios like this, which clearly illustrate the energy crisis that the world is about to experience.
Over the next few years, I will put the Mexican production from the BP Statistical Review on top of this chart. We will see how well this prediction holds up.
10-9-04
Edited on Dec 30, 2006.
Mexican production has finally hit the brick wall. Here is a chart of their production. Note the 7% decline from April 2006 to the end of 2006.
