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 Business News | August 2006 
Mexico Oil Output to Decline, Analysts Say
 Amy Strahan - Bloomberg
| | Oil production in Mexico may have peaked in 2004, according to Raymond James & Associates. (AP/Dave Martin) |
Mexico's oil output will probably decline in the next two years if the country doesn't allow foreign investment to boost drilling, according to Raymond James & Associates.
Production in Mexico may have peaked in 2004, analysts J. Marshall Adkins and Pavel Molchanov wrote in a July 10 report, because the 30-year-old Cantarell field, the world's second-largest, has reached maximum output, they said. Petróleos Mexicanos, the state oil company, said Aug. 2 that Cantarell production will decline 8 percent this year.
"The country's oil production looks like it already might have peaked - quite possibly for good," they said in the report. ``At the very least, production appears stagnant. Following a decline in 2005, we project that Mexican production will again show modest year-over-year declines in 2006 and 2007."
Foreign investment to boost production in Mexico is unlikely because of prohibitions in place since Petróleos Mexicanos, the government oil company, was formed in 1938. Felipe Calderón, who won a narrow victory as president of Mexico last month, said he does not favor privatization, although he supports allowing Pemex to form joint ventures with foreign operators, Molchanov said.
Pemex is so heavily taxed it has no capital for re-investment in exploration and production, Molchanov said in an interview. ``After paying its operating and labor costs, Pemex may have to borrow to fund its capital spending, despite record oil prices."
Crude oil output at Cantarell fell faster than expected in June to a four-year low, according to data from Mexico's energy ministry. The decline signals the government will miss production targets.
The field, which accounts for about half of Mexico's crude production, yielded 1.74 million barrels a day in June, the most recent month for which information is available. That's 13 percent less than a year ago and the least since November 2001, according the ministry.
The drop worsens the outlook for Mexico's crude exports, about 80 percent of which go to the United States. The decline comes as BP Plc announced Sunday it is temporarily closing its Prudhoe Bay oil field because of pipeline corrosion. Prudhoe Bay is the largest field in the United States. About 400,000 barrels a day of production is being shut, possibly for months.
Crude oil prices have increased 23 percent this year on concern that supplies won't be able to meet increases in global demand. Violence in Nigeria cut output by 20 percent this year, and efforts to curtail Iran's nuclear program have increased the risk of a reduction in shipments from the Islamic republic.
Oil futures in New York rose to a record $78.40 a barrel on July 14.
Mexico, the third-largest oil producer outside of the 11-member Organization of Petroleum Exporting Countries, pumps 4 percent of the world's oil. Estimates from the Mexican government have suggested that the Cantarell field won't begin declining until 2008, Molchanov, Adkins and Wayne Andrews wrote in the note to investors.
In 2004, Mexico's production rose less than 0.4 percent, and by 2005 it fell 1.4 percent, according to the analysts. Mexico currently produces 3.78 million barrels a day, Molchanov said.
The current stagnant production figures suggest oil prices could continue to rise, according to the report.
Saudis, Mexico Pledge Help on US Oil
Steve Holland - AP
Saudi Arabia and Mexico have pledged to help fill shortages in the U.S. oil supply due to the Alaska pipeline shutdown, the White House said on Tuesday.
BP Plc is shutting down its 400,000 barrel-a-day Prudhoe Bay field in Alaska after poor maintenance corroded the transit pipeline that moved the crude. The Energy Department says the pipeline might not come back online fully until January.
The pipeline problem, which hit at the heart of the U.S. summer driving season, threatens to shoot prices at the pump to new records above $3 a gallon.
White House spokesman Tony Snow said there did not seem to be a significant supply interruption at this stage, but that talks have been held with Saudi Arabia and Mexico in recent days and that the two governments had pledged to help out with any shortages.
"We've had contact with the governments of Saudi Arabia and Mexico. If there are supply shortages, they have agreed to help us in trying to address those. At this point, no refineries have reported shortages in petroleum, but, obviously, if those become a factor, we will address it and address it vigorously and in a timely manner," Snow said.
Snow had no more details about how much oil Saudi Arabia and Mexico might be willing to provide.
He reiterated that the Bush administration was willing to tap into the Strategic Petroleum Reserve if necessary to fill gaps in U.S. supply, but said so far refineries have not made any such request.
"We're actually in a pretty good supply situation," Snow told reporters near President George W. Bush's ranch.
He said U.S. officials would like to get the BP pipeline in Alaska up and running as soon as possible.
Faced with charges from Democratic New York Sen. Charles Schumer (news, bio, voting record) that there has been a lack of oversight, Snow said the discovery of corrosion in the pipe was a result of pipeline inspection rules laid down by the Bush administration.
"We're happy that BP finally is making progress in addressing concerns which have been discussed with it in the past," he said.
A team of government investigators is at the site of the pipeline problem to assist in assessing the situation.
Asked if Bush was concerned about the impact of the pipeline shutdown on prices, Snow said: "I think any time you have a price increase, you want to try to address the root cause, and the root cause here is trying to go at it and deal with the pipeline integrity."
"They have to be operating in a way that is safe and also environmentally sound," he said. |
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