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Mexico’s oil output may decline sharply

David Luhnow, Wall Street Journal
Pemex Study Points to Possible Drop At Major Field, Which Would Strain Global Supply
MEXICO CITY – Mexico’s huge state-owned oil company may be facing a steep decline in output that would further tighten global oil supply and add to global woes over high oil prices.

The potential decline faced by Petroleos Mexicanos, or Pemex, also could undermine U.S. efforts to reduce dependence on Middle East oil, and complicate Mexican politics and financial stability.

An internal study reviewed by The Wall Street Journal shows water and gas are encroaching more quickly than expected in Cantarell, Mexico’s biggest oil field, and might cause output to drop precipitously over the next few years. Currently, Cantarell produces two million barrels of oil a day, or six of every 10 barrels produced by Mexico. It is the world’s second-biggest-producing field after Saudi Arabia’s Ghawar.

The worst two scenarios suggest a drastic decline in output to 875,000 barrels a day by the end of 2007 and to just 520,000 a day by the end of 2008. If such projections turn out to be correct, Mexico’s overall oil exports would decline by about one million barrels a day — equal to about 63% of its daily crude exports to the U.S. — from its current 1.8 million.
(9 February 2006)
Tip from “DantesPeak” at peakoil-dot-com. The WSJ site may require a log-in. The article is also posted here. Related article from AFX via Forbes.

Energy gaps seen in Bush’s budget
Plan would cut funding aimed at conservation

Rick Klein, Boston Globe
President Bush’s latest spending plan is unlikely to substantially reduce US oil consumption in the short term because it slashes $100 million from federal programs promoting conservation and falls short of the commitment in last year’s energy bill to make vast new investments in renewable and emerging technologies, like hydrogen fuel and solar power.

Despite Bush’s ambitious goal of cutting Middle East oil imports by 75 percent within 20 years — outlined in his State of the Union address a week ago — the president’s budget calls for an 18 percent cut in programs aimed at reducing energy consumption, like financial aid to help needy families better insulate their homes and research to make cars use fuel more efficiently.

Critics say the budget sends a mixed message on energy policy: The president wants to invest in renewable energy but would spend less on it than he promised in the energy bill he signed and would scale down efficiency programs that would more quickly reduce the nation’s demand for oil.

”The reality in no way meets the rhetoric,” said Dan W. Reicher, president of New Energy Capital, a Vermont-based renewable energy company. Reicher, deputy energy secretary under President Clinton, said the White House budget cuts ”energy efficiency and other vital programs in order to pay for renewable-energy increases. It’s hard to see that we reach the goals the president has set.
(8 February 2006)
Recommended at Gristmill.

Woes mount for oil firms in Ecuador

Kelly Hearn, The Christian Science Monitor
LAGO AGRIO, ECUADOR – No one said running a multinational company was easy. But for energy firms that depend on the steady flow of oil and gas from remote, often unstable, parts of the world, just keeping the pipelines secure can be a feat.

In eastern Ecuador,oil companies face daily threats – from kidnappings of workers to sabotage of installations. Tuesday, hundreds of protesters seized a pumping station, causing state-run Petroecuador to shut down one of its two main pipelines.

In August, oil opponents brought almost all of Ecuador’s oil production to a halt. Protesters invaded oil camps, destroyed equipment, and blocked highways, prompting the defense minister to threaten force to stop them. One oil executive says he knows of 19 kidnappings of oil-industry workers in recent years.

Protecting oil installations here calls for robust security measures, but recently publicized contracts mapping oil industry ties to the Ecuadorean military have raised concerns in a country where populism runs deep and three presidents in the past decade have been forced out of office amid popular unrest.

The contracts highlight the troubles facing many multinational energy companies as they seek to diversify drilling sources away from the Middle East and into countries where extractive industries have been linked to environmental and human rights concerns. Critics here say the rarely seen documents – some of which detail company mandates for soldiers to conduct countersurveillance operations on the local population – are proof that Ecuador’s military is a private army for oil firms.
(9 February 2006)

Backgrounder on Bolivia’s new president

Steve Boggan, Guardian
He’s tackling poverty and corruption, he’s the first ever indigenous Bolivian president – and then there’s that jumper. No wonder they adore him at home. But elsewhere Evo Morales is not so popular because of his refusal to cut down on the production of coca, the raw material for making cocaine. At the presidential palace in La Paz, Steve Boggan was granted an audience.

…This would be a good place to explain just what is happening in Bolivia, but a little history and geography first. Bolivia, a landlocked country, is bordered by Brazil in the north and east, Paraguay and Argentina to the south, and Chile and Peru to the west. Two-thirds of its almost nine million inhabitants are indigenous Amerindian Aymara and Quechua, approximately 1% are African descendants of slaves brought over for mining, and the remainder are descendants of European settlers, primarily Spanish.

The conquistadores arrived early in the 16th century and extracted metal resources, mostly silver and tin, for all they were worth, ruthlessly exploiting the indigenous population and creating in the minds of most Bolivians a terrible suspicion of foreign exploitation of natural resources. The conquistadores and their mixed descendants, the minority mestizo, had clung to power for 500 years until Morales’s victory in December. He was installed as president on January 22.

Immediately, there was consternation in the northern hemisphere, especially in Washington. Morales’s party, MAS (Movement Towards Socialism), a loose conglomeration of leftist unions and social interest groups, had campaigned on a ticket of decriminalisation of coca cultivation and nationalisation of natural resources. What, outsiders wondered, would this mean for the US’s war on drugs? What, too, would it mean for international mining, oil and gas companies that had ploughed billions of dollars into exploration and extraction? British companies alone, such as BP, Shell and British Gas had spent upwards of $800m (£459m) on Bolivian projects in recent years.
(9 February 2006)

The hard truth about oil

Nelson D. Schwartz, Fortune
No matter what the president says, conservation is America’s only route to energy independence.

Presidents going back to Richard Nixon have been talking about energy independence. It’s one of those vote-getting platforms that no one could possibly be against — like world peace, mom and apple pie. It gives us the illusion of control over our energy destiny, which we don’t have, at least in a fossil-fuel based economy.

But it’s a lost cause.

The only way we’re ever going to be able to boost oil supplies here at home is through conservation, and that’s something the government is going to have push aggressively, at least until technological advances like cellulosic ethanol, hydrogen and other alternative energy forms become available.

Don’t take my word for it. Just listen to what Big Oil has to say…
(9 February 2006)
Interesting commentary from a Fortune editor. A couple of weeks ago, Fortune was touting ethanol: How to beat the high cost of gasoline. Forever.. A difference of opinions among the Fortune editors? -BA

Read my lips… No new energy strategy

Byron W. King, Whiskey & Gunpowder
WHAT DID I THINK of President Bush’s State of the Union address?

…after 30 drafts of his speech, Mr. Bush actually used the “A” word. The phrase “addicted to oil” is hardly original, having been a staple of energy commentary for several decades. But this turn of a phrase from the mouth of a sitting president is powerful, and hits with a lot of psychological momentum.

…After the energy price spikes caused by Hurricanes Katrina and Rita this past fall, I suspect that the American people are ready to listen to some intelligent discussion of the virtues of conservation. And after watching what has happened to the major U.S. automakers in the past few years, I suspect that the American people are ready to listen to some intelligent discussion of the virtue of efficiency. The American people are ready for some “teachable moments” on this subject.

Another important phrase missing from the State of the Union speech was “energy plan.” What is the president’s plan for the long term? Mr. Bush spent many months of 2005 trumpeting his plan for the future of Social Security. He sponsored a plan to reform Medicare. So what is his plan for U.S. energy security in the coming years? After all, as the saying goes, “Plans are nothing; planning is everything.” This is a famous quote from Gen. Eisenhower that is usually found painted on the wall of every staff college of the U.S. military.

Strategic planning is critical. It is not as if things will exactly follow plan. But it is important that you have at least planned something and thought things through with respect to whatever you hope to accomplish. You have identified your challenge. You have considered your desired end state and determined which pathways might get you there.
(8 February 2006)
Byron King has also written about the State of the Union speech in his recent article The 75% solution.