Analysis: Mexico faces production decline


RIO DE JANEIRO, Feb. 15 (UPI) -- Mexico is facing a possible steep decline in oil production in 2006 and beyond due to setbacks at its largest oilfield, experts have warned.

A recent study conducted by Mexico's state-owned oil company Petroleos Mexicanos, or Pemex, says output could be threatened at its largest oilfield due to encroaching water and gas. When gas or water enters an oilfield it contaminates the supply, making it more difficult to sell on the market, energy analysts say.


The Cantarell field is Mexico's largest source of crude, producing 2 million barrels per day, or 60 percent of Mexico's total output. Any threat to its production capacity would severely hamper Mexico's already-strapped oil sector and thwart U.S. plans to decrease American dependency on Middle Eastern oil, as espoused by President George W. Bush in his State of the Union address last month.


Canada and Mexico are the largest suppliers of oil to the United States.

Pemex officials have expressed confidence, however, that the company can make up for any setbacks it might experience in the coming years.

"I am confident in Pemex's portfolio of assets," said the state companies Chief Financial Officer Juan Jose Suarez Coppel in a recent interview. "Other fields will be able to substitute (Cantarell's output) and increase production."

An internal report by Pemex actually predicts the company will increase output in 2006 to 3.42 million barrels a day, up from 3.33 million bpd in 2005.

But at the same time, output at Cantarell -- second globally in production only to the Ghawar oil field in Saudi Arabia -- is predicted to decline by 6 percent to 1.9 million bpd and be diminished to 1.43 million bpd by 2008, a significant drop that could have devastating financial implications to the company and further add to Mexico's energy crunch.

Some experts believe the Pemex report predicting dire days for the Cantarell field is actually a not-so-subtle cry for additional state funding.

Jaime Brito, an analyst with the U.S.-based energy consulting firm PFC Energy, told United Press International that Pemex "is up to its neck in debt" and speculated that the company's report was an exaggeration of the likely drop off the field could experience in 2006 and beyond due to natural causes.


The report's release was conspicuously timed with the announcement that Pemex is seeking to add a seventh refinery to its ranks in Mexico.

Proposed locations for the refinery were either on the Pacific or Gulf Coast at a cost estimated at $4 billion. If approved, the refinery would be scheduled to begin operation by 2010.

That would certainly be news well received in Washington, where the Bush administration has stressed the need to reduce U.S. dependence on the Middle East for its energy needs and is looking to Mexico to increase its production. America's southern neighbor already sends on average 1.8 million bpd across the border.

A desire for Mexico to bolster its production became even more apparent following last year's devastating hurricane season, which knocked U.S. crude refinement offline along the Gulf Coast for weeks and sent prices at the pump skyrocketing.

Meanwhile, the fate of Pemex has become a point of interest for Mexican presidential candidates, though the three frontrunners have shied away from making concrete statements about how they would handle the world's third-largest producer of crude.

But none has gone as far as suggest Mexico lift its ban on privatizing the state-owned company, a restriction written into the Mexican constitution.


Even partial privatization of Pemex would certainly cutting thousands of jobs from a company with a workforce said to be about 130,000 strong. An election-time discussion of privatization would inevitably lead the candidates into talking about job losses, a subject they are likely to want to avoid.

"Mexico and Pemex have lots of problems, but the candidates just don't want to address the energy issues," Brito said.


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