The news just keeps getting worse from Mexico’s huge Cantarell oil field—and worse faster than anybody had expected too.
Cantarell, a big field in the Gulf of Mexico, was once the world’s second largest oil field. But after years of under investment by Mexico’s national oil company Pemex production started to drop.
I wrote about this decline in my December 2008 book The Jubak Picks. At that time Pemex was projecting that even if it stepped up its investment in technology to wring more oil out of the field production from Cantarell would fall to just 700,000 barrels a day by 2012.
That would make a huge fall from the 2 million barrels a day that Cantarell produced in January 2006, I wrote way back then.
On September 8, however, Pemex announced that production at Cantarell had already plunged to just 500,000 barrels a day, way below the 700,000 pessimistically projected in December 2008 for 2012.
The damage from Cantarell’s decline doesn’t stop with Pemex.
Before the collapse in oil production from Cantarell and the halving of oil prices, Mexico’s government got about 40% of its revenue from Pemex. The decline in oil production and oil prices have cut Mexico’s oil exports by roughly $14 billion a year.
So it shouldn’t come as any surprise that Standard & Poor’s lowered its credit rating on Mexico’s national debt to negative in May. Unless the country’s politicians can agree on a tax reform package—which is really a tax increase to make up for the shortfall in oil revenue—it’s like that Mexico faces another downgrade before the end of the year.
I’d say, by the way, that there’s almost no chance that Mexico’s dysfunctional political establishment will enact the changes in tax law needed to stabilize the country’s finances or the changes in the country’s oil laws that would let Pemex bring in the foreign partners it needs to increase production. At least not in 2009 and not before the crisis gets worse.
The proponents of peak oil—the theory that the world is no longer finding enough new oil from conventional sources to keep up with increases in oil consumption—can rightfully point to Cantarell as confirmation for one part of their theory. Once a field goes into decline, peak oil proponents have argued, the decline in production is shockingly rapid.
Cantarell is now Exhibit #1.
El Normo, peak oil isn’t about running out of oil. It’s about running out of cheap oil. They can discover a trillion barrels of oil, but if its going to cost more than $200 a barrel to extract, it might as well not exist.
Modern civilization runs on cheap oil, billions and billions of barrels a year. Finding 2 billion barrels in the middle of the ocean and a mile under the ground doesn’t mitigate the problem.
The concerning thing about watching Canterell is most of the technology applied to the field over the last ten years had to do with getting the oil out of the ground faster(EOR). This is true across all oil fields in the world. We have gotten better at getting the production up but this does not create new oil. This could be a canary in the coal mine that decline rates will be much steeper than the IEA 6-9% predicted from last years World Energy Outlook.
Don
Cantarell’s production is dropping by 1.5 million barrles a day. The big BP find at Tiber will eventually, according to the company, add 200,000 barrels a day to production. Production is about 5-6 years away. The point of peak oil theory is that oil finds are getting smaller and that the new oil is vastly mor expensive to produce than the old. Cantarell was discovered by a Mexican fisherman who saw oil floating on the water in a shallow part of the Gulf of Mexico. Tiber was discovered after BP and its partners drilled a well through 4000 feet of water and another 31000 feet of seabed. Recovery rates in similar finds have been a very low 5% to 15% so BP will almost certainly have to use expensive enhanced recovery techniques to raise the amount of oil it gets out of this find.
Jim, there is no secret – there is plenty of oil, if you are willing to pay high enough price for it (sand oil is just one of those examples). Are there any publically traded companies left, which have a relatively low cost of oil extraction and large enough oil reserves?
Yes, they are finding oil but have you looked at the cost of drilling those wells that are at the edge of current technology? I do not think it will pay to develop those fields at current oil prices. Also the estimates of recoverable oil in those fields are pretty low.
Peak oil? Didn’t BP just have huge oil find in the Gulf of Mexico, and there was another huge find off the atlantic coast of south america? Also, I think the cuban finds haven’t been exploited yet.
I guess it comes down to numbers. Can the declines from existing fields be projected? Are these new finds enough to compensate for the decline?
would this mean we can expect their currency to depreciate against the dollar until we see solid plans to stabalize their deficit?