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Mexico’s declining oil production, rising social problems
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The future of Mexico’s economy and social order is starting to look hazy. If not from oil exports, from where will the Mexican government get one-third of its revenues … manufacturing Chinese-designed electric vehicles for sale in the U.S.? Maybe not, at least not in the short-term. The world is demanding oil now. So, Mexico aggressively pursues the extraction of its oil resources; but despite these aggressive efforts, Mexican oil production is declining.
Cantarell oil field in Mexico peaked in oil production in 2003-04 just above 2 million bpd; it has since fallen off to under 775,000 barrels per day (bpd). The Ku-Maloob-Zaap (offshore), discovered in 2002, was Mexico’s second largest producing oil field until recently. Due to declining production at Cantarell and increasing production at Ku-Maloob-Zaap, the latter surpassed the former and became Mexico’s most productive oil field in 2009 pumping out around 800,000 bpd. Ku-Maloob still has a ways to go before being able to fill the shoes of an operation like Cantarell, though; Cantarell was first discovered in 1976 in the Bay of Campeche, and since then, nearly 12 billion barrels of oil have been pumped from the reservoir in its lifetime, but recent declines have been rapid and are leaving Mexican officials wondering what happens if oil export revenues disappear.
“With no major additions to domestic refining capacity forecast for 2010, the projection implies that crude oil production will fall by up to 245,000 bpd in 2010 to levels not seen since the late 1980s”, Reuters reports. The article goes on to say, “The sharp fall in oil production poses a significant threat to Mexico's budget, which relies on oil revenues to pay for more than a third of expenditures”.
In order to keep Mexican oil production levels up, production at the onshore Chicontepec project is being ramped-up. “Two recent reports say that the country is taking heroic measures to increase production at their Chicontepec field in order to make up for continuing large declines at Cantarell”; but “analysts are skeptical it can dramatically raise yields at the field, where billions of barrels of oil are locked in tight pockets of rock that makes production slow and costly”. The oil fields in the Chicontepec basin and at Ku-Maloob-Zaap together, though, are not displaying the capacity to keep up with other projects in terminal decline; as one industry insider reports, “the size of current fields that have been discovered or are coming online represent a fraction of the size of the oil fields going into terminal decline”.
Accounting for nearly one-third of government revenues, a certain sense of social stability relies on oil production numbers in Mexico meeting export demand figures. Mexico can find another more sustainable industry over the long-term that can provide one-third of the government’s revenues, but right now, the world is demanding oil, and Mexico has made some critical bets on global oil-consumption rates. “Oil is Mexico's number-one export. With its oil revenues in decline, the state is finding it increasingly difficult to fund operations-including operations against one of its other top exports: illegal drugs”.
The mainstream media in America has been awash in stories on the recent rise in drug-gang violence in Mexico. Since President Felipe Calderon took office in 2006, close to 10,000 people have since been killed in drug-related violence. Recently, the violence has seemed to escalate and spread across the border. Is Mexico losing control of its illegal drug industry due to lack of funding resulting from slowing oil revenues? Mexico’s problems will spill over into America. A social unraveling of a major economy immediately to the south of the U.S. would cause considerable unrest in America, especially along the southern border. Are Mexican police regaining control over the situation, or will there simply be more drug-gang violence due primarily to insufficient funds to control the illegal drug trade?
State-owned oil company, Pemex, Petroleos Mexicanos, has been ramping-up production by bringing more fields online; is there enough oil to be harvested in time to save the Mexican economy and keep the social fabric of Mexico from ripping? What longer-term plan concerning sustainability in Mexico’s future should we be talking about in order to avert societal chaos on America’s southern border? To what degree is American societal stability, especially along the southern border, tied to the Mexican economy, and hence, Gulf of Mexico oil drilling?
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