Friday, May 16, 2008

Washington Post: Time Running Out for Energy in Mexico

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By Marcela Sanchez
Special to
Friday, May 16, 2008; 12:00 AM

WASHINGTON -- Mexican Energy Secretary Georgina Kessel's warning to the Mexican Congress last week sounded ominous: If legislators did not approve reforms within the oil sector, the country would suffer a "severe energy crisis" within a decade.

That's probably an understatement.

Mexico's oil production is rapidly declining. The Cantarell oil field, one of the world's largest, is responsible for almost two-thirds of Mexico's production. In 2004, it brought up 2.1 million barrels a day; today it produces only half that. Unless new sources are found, Mexico -- up until last year the second-largest supplier to the United States -- will become a net oil importer by the year 2018.

For some countries, being a net oil importer is no big deal. But for Mexico, oil represents the single largest amount of revenue for the federal government -- about 40 percent. This looming "energy crisis" would be felt more than just at the pump. It would be across the board, impacting financial, social and political sectors as well.

Still, almost every expert on this issue I've interviewed or heard speak in recent months insists that it won't get that bad. They say Mexico will come to its senses and adopt the kind of overhaul that will give the country's state-run oil company, Petroleos Mexicanos -- Pemex -- enough flexibility to invest more of its profits in modernizing its operations. That way, the experts say, it could become more like Brazil's state-run Petrobras, regarded as one of Latin America's most well-run companies.

At the same time, Mexico's attitude about oil and Pemex's serious systemic flaws don't inspire much optimism. The energy proposals introduced last month by President Felipe Calderon offer some modest reforms, but probably not enough to stem the crisis. As Jeffrey Davidow, a former U.S. ambassador to Mexico, put it diplomatically, "the steps they are taking are not sufficient."

1 comment:

Brendan said...

Oil price has to go a lot higher.

1) Growth in Emerging Economies --> Rising Oil Consumption --> Higher oil price

2) OPEC --> Government depend on oil income --> Cartel restricts supply --> Higher Oil price

3) Geopolitical Issues --> Cause disruption / thread of oil production --> Lower global spare capacity --> Higher Oil price

4) Peak Oil Theory --> Declining Oil production --> Less Supply --> Higher oil price