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Mexico's Oil Output Cools

Daily output at Mexico's biggest oil field tumbled by half a million barrels last year, according to figures released Friday by the Mexican government. The ongoing decline at the Cantarell field could pressure prices on the global oil market, complicate U.S. efforts to diversify its oil imports away from the Middle East, and threaten Mexico's financial stability.

The virtual collapse at Cantarell -- the world's second-biggest oil field in terms of output at the start of last year -- is unfolding much faster than projections from Mexico's state-run oil giant Petroleos Mexicanos, or Pemex. Cantarell's daily output fell to 1.5 million barrels in December compared to 1.99 million barrels in January, according to figures from the Mexican Energy Ministry.

Mexico made up for some of the field's decline. Mexico's overall oil output fell to just below three million barrels a day in December, down from almost 3.4 million barrels at the start of the year. It marked Mexico's lowest rate of oil output since 2000.

Mexico's troubles at Cantarell mirror the larger problems in the global oil market. Many of the world's biggest fields are old and face decline, which can be sharp and sudden. Like other big producers, Mexico is struggling to make up the difference because new big fields are in harder-to-reach places like the deep waters of the Gulf of Mexico.

..."This is bad news for Mexico. The field is declining faster than even the government's pessimistic scenarios," says David Shields, an oil industry consultant in Mexico City who has been warning about Cantarell's collapse for the past two years.

...Mexico's growing economy is demanding more fuel each year, which is expected to translate to even lower oil exports.

Editorial Notes: Contributor Jeffrey J. Brown writes:
The WSJ article is an update to one they did about a year ago, predicting a crash in Cantarell's production, based on leaked internal reports. By the way, based on this article (and a previous NPR interview), it looks like Shields is predicting (at least) a net decline in Mexican production of 400,000 bpd from 12/06 to 12/07, and then another drop of 400,000 bpd from 12/07 to 12/08. Based on the NPR interview, I had been characterizing it as a 800,000 bpd drop from 2007 to 2008. In any case, this would be a net decline of about 1.2 mbpd over a three year period (12/05 to 12/08), which would be an annual net decline rate of 15% per year. Note that if we use average annual values, we will get a lower annual decline rate, but in my opinion where we have declining (especially rapidly declining) production, month to month comparisons give us a better prediction of production for a given future month. Unless Mexico drastically curtails their domestic consumption, at the projected decline rate, Mexico will effectively cease to be a net oil exporter by the end of 2008, just in time for the US presidential elections. I wonder how well efforts to curtail domestic oil consumption, in order to ship oil to the north, will go over in Mexico? There are media reports out suggesting that Saudi Arabia's crude + condensate production may have already fallen below 8 mbpd in December. We do know that Saudi Arabia and Mexico are unilaterally curtailing crude oil shipments to refiners (below what the refiners want to buy). FYI--exactly one year ago today I warned of a rapidly developing net oil export crisis:

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