April 23, 2014

Pemex Declining Output On Heels of U.S. Report of Mexican Instability

pemex_logoWednesday’s news about the Mexican oil industry won’t be good, and the implications are not merely to the Mexican economy.

According to reporting tonight from Bloomberg, Pemex, Mexico’s state-owned oil company will report on Wednesday historic declines in production.

This comes just days after a report by the U.S. Joint Operations Command which said that Pakistan and Mexico are in danger of sudden collapse.  In my mind, this note from the Bloomberg article ties Mexico’s oil production to Mexico’s stability:

Mexico relies on Pemex for 40 percent of its budget. Falling sales may cut into funding for a 570 billion-peso ($41 billion)-a-year infrastructure plan President Felipe Calderon is counting on to keep the country out of recession this year, Schtulmann said.

Pemex is among the ten largest oil companies in the world and outside of Canada and Saudi Arabia, Mexico is the largest importer of oil into the U.S.  It’s astounding that 40% of Mexican government revenue is dependent upon Pemex.  Mexico faces all of the structural economic problems it always has.  Recently, the government has been locked in what seems a death struggle with drug cartels who are buying out or killing anyone that gets in their way.  In 2008, 5,000 murders were attributed to Mexico’s struggle with the cartels.

Oil prices fell below $33 per bbl today.  U.S. and international inventories are high; world demand has lowered due to the recession – barring an insurrection in Saudi Arabia, prices aren’t going up soon.  Mexico is screwed.

And, so are we if our little slice of the Third World goes Pakistan Northwest Tribal Areas on us any time soon.

Aside from the scary scenarios one may conjure over the breakdown of central authority in Mexico, there is yet another strategic question for the U.S.  Where do we go to replace the lost Mexican barrels?  When our economy takes off again and demand for crude goes back on the upward slope, from which international bad actor will we be purchasing more oil?

Comments

  1. Mexico’s oil production in global perspective:

    Global crude oil production peaked in 2008.

    The media, governments, world leaders, and public should focus on this issue.

    Global crude oil production had been rising briskly until 2004, then plateaued for four years. Because oil producers were extracting at maximum effort to profit from high oil prices, this plateau is a clear indication of Peak Oil.

    Then in August and September of 2008 while oil prices were still very high, global crude oil production fell nearly one million barrels per day, clear evidence of Peak Oil (See Rembrandt Koppelaar, Editor of “Oil Watch Monthly,” December 2008, page 1) http://www.peakoil.nl/wp-content/uploads/2008/12/2008_december_oilwatch_monthly.pdf.

    Peak Oil is now.

    Credit for accurate Peak Oil predictions (within a few years) goes to the following (projected year for peak given in parentheses):

    * Association for the Study of Peak Oil (2007)

    * Rembrandt Koppelaar, Editor of “Oil Watch Monthly” (2008)

    * Tony Eriksen, Oil stock analyst; Samuel Foucher, oil analyst; and Stuart Staniford, Physicist [Wikipedia Oil Megaprojects] (2008)

    * Matthew Simmons, Energy investment banker, (2007)

    * T. Boone Pickens, Oil and gas investor (2007)

    * U.S. Army Corps of Engineers (2005)

    * Kenneth S. Deffeyes, Princeton professor and retired shell geologist (2005)

    * Sam Sam Bakhtiari, Retired Iranian National Oil Company geologist (2005)

    * Chris Skrebowski, Editor of “Petroleum Review” (2010)

    * Sadad Al Husseini, former head of production and exploration, Saudi Aramco (2008)

    * Energy Watch Group in Germany (2006)

    * Fredrik Robelius, Oil analyst and author of “Giant Oil Fields” (2008 to 2018)

    Oil production will now begin to decline terminally.

    Within a year or two, it is likely that oil prices will skyrocket as supply falls below demand. OPEC cuts could exacerbate the gap between supply and demand and drive prices even higher.

    Independent studies indicate that global crude oil production will now decline from 74 million barrels per day to 60 million barrels per day by 2015. During the same time, demand will increase. Oil supplies will be even tighter for the U.S. As oil producing nations consume more and more oil domestically they will export less and less. Because demand is high in China, India, the Middle East, and other oil producing nations, once global oil production begins to decline, demand will always be higher than supply. And since the U.S. represents one fourth of global oil demand, whatever oil we conserve will be consumed elsewhere. Thus, conservation in the U.S. will not slow oil depletion rates significantly.

    Alternatives will not even begin to fill the gap. There is no plan nor capital for a so-called electric economy. And most alternatives yield electric power, but we need liquid fuels for tractors/combines, 18 wheel trucks, trains, ships, and mining equipment. The independent scientists of the Energy Watch Group conclude in a 2007 report titled: “Peak Oil Could Trigger Meltdown of Society:”

    “By 2020, and even more by 2030, global oil supply will be dramatically lower. This will create a supply gap which can hardly be closed by growing contributions from other fossil, nuclear or alternative energy sources in this time frame.”

    With increasing costs for gasoline and diesel, along with declining taxes and declining gasoline tax revenues, states and local governments will eventually have to cut staff and curtail highway maintenance. Eventually, gasoline stations will close, and state and local highway workers won’t be able to get to work. We are facing the collapse of the highways that depend on diesel and gasoline powered trucks for bridge maintenance, culvert cleaning to avoid road washouts, snow plowing, and roadbed and surface repair. When the highways fail, so will the power grid, as highways carry the parts, large transformers, steel for pylons, and high tension cables from great distances. With the highways out, there will be no food coming from far away, and without the power grid virtually nothing modern works, including home heating, pumping of gasoline and diesel, airports, communications, and automated building systems.

    Documented here:
    http://www.peakoilassociates.com/POAnalysis.html
    http://survivingpeakoil.blogspot.com/

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