January 30, 2007
Cantarell in decline
Production from Mexico's Cantarell oil field is falling quickly.
From Saturday's Wall Street Journal ($$$):
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....
The field's decline is expected to continue, if not worsen, this year, according to most estimates.
Mexico had been the world's fifth biggest oil producer in 2005. When Ghawar (the world's biggest field, accounting for half of Saudi Arabia's total oil production capacity) follows Cantarell, people will take notice.
And while I'm mentioning the Saudis, how can it be that both (1) "the present level of oil prices is adequate in our view," as outgoing U.S. Ambassador Turki Al-Faisal declared on Monday, and (2) the Saudis are continually implementing even bigger cuts in production, as we learned on Tuesday?
If Mexico can't, Saudi Arabia won't, and the U.S. and China remain thirsty, I still don't see how oil below $50 a barrel could hold.
Posted by James Hamilton at January 30, 2007 06:56 PMdigg this | reddit
Neither can I.
Posted by: Martin at January 30, 2007 11:48 PM
I have been following the oil market for some years, and I have to say that there are many weird things going in there... specially with regards to KSA. Even the mainstream media is reporting strange movements of KSA toward Iran (the oil weapon).
Meanwhile, the saudi oil rig count is still very high, are they truthful when they say they are just assuring adequate production capacity in case there are major disruptions caused by geopolitical events?
Posted by: Peaknik at January 31, 2007 03:46 AM
This is good news. The more oil is depleted the more attractive alternative sources of energy will become. One of the primary problems with alternative energy is storage efficiency. Recently there have been some very hopeful advances in capacitor and battery technology.
The best thing we could do for energy availability and energy prices is to totally deregulate oil and allow the depletion to run its course.
Posted by: DickF at January 31, 2007 05:34 AM
The question is: Can KSA use oil as a weapon? Is it able to? And what about those cuts? Doesn't sound like a weapon to me.
I have the impression--and only a vague one from reading about various corporate efforts to save on energy--that conservation is growing on the part of those who are aware of the problem.
Posted by: Stormy at January 31, 2007 05:52 AM
I have read numerous reports of mismanagement and underinvestment by Mexico, Venezuela and Iran wrt to their oil fields. Couldn't the declines have more to do with incompetence than actual depletion.
DickF - I can't wait for energy to be more costly. Yippee!
Posted by: Rich Berger at January 31, 2007 06:25 AM
I can't believe more people don't know what's going on with the oil situation. KSA isn't acting "weird", they are acting like a country who can not increase production and can't tell anyone yet.
People remember History rhymes.....
In the US in the middle/late seventies the Texas RR commission released the quota system and in Texas we witnessed the largest boom in oil well drilling history. Well counts quadrupled in under ten years, yet every single year oil production fell until Prudhoe Bay was brought online and provided a secondary, albeit smaller peak.
Fast forward to KSA. In the last three years, they have leased every available oil rig. Why would their production decline in spite of higher prices following Katrina? They CAN'T increase production and they can't tell anyone because the royal family is terrified of the political consequences.
Posted by: Patrick at January 31, 2007 07:15 AM
Oil revenues make up 33% of the Mexico government budget. At the current decline rate, combined with the current rate of increase in consumption, Mexico will become a net oil importer in 2 - 3 years. That means that in 3 short years 33% of the national budget will have to be replaced by tax increases or spending cuts or debt. Seems like a sure recipe for disaster.
Posted by: BL at January 31, 2007 07:17 AM
Re: I still don't see how oil below $50 a barrel could hold
Me either, Dr. Hamilton. But I've been amazed by the oil price trend for some months now. Visit The Oil Drum today for a detailed analysis of Mexico's problem.
As far as Saudi Arabia goes, there is a cottage industry devoted solely to divining their production situation in the absence of real information. Someday, Simmons will be right about Ghawar but we don't know when. Meanwhile, KSA has accelerated plans to put new productive capacity onstream to lower the oil price to put pressure Iran's export revenues. I recommend that this development, too, should be greeted with skepticism, which is always my attitude when I don't have any hard data in front of me.
Posted by: Dave Cohen at January 31, 2007 09:18 AM
Thanks, Dave. Here's the link to the Oil Drum post to which you refer.
Posted by: JDH at January 31, 2007 09:31 AM
According to Jim Hoagland in the Jan. 21 WaPo, Saudi Oil Minister Nuaimi has opposed oil production cuts proposed by Iran. Hoagland says that while this is "officially a technical matter," the real issue is using the oil weapon against Iran. The oil weapon that hurts Iran is not production cuts by Saudi, but production increases, with an effort being made to hold the price around $50 per barrel. This gives Iran less money for its various programs, and with its large population hurts it relative to Saudi.
Posted by: Barkley Rosser at January 31, 2007 02:54 PM
Oil below $x -- $50, $100, $1000 -- cannot hold. Crude is a wasting asset. Its long-term price trend can only go in one direction. It is uninteresting to reassert same.
What is interesting is to look at actual indicators of current global demand for oil. Price is one. Prices are down since last summer, and the last time I thought I was right and the market was wrong, I took some big losses. Inventories are another. In the US, product stocks are quite high (crude stocks themselves are uninteresting, since marginal barrels are now imports). If $50 is the "wrong" price, why aren't stocks being depleted?
Posted by: wcw at January 31, 2007 06:43 PM
wcw, inventories are declining, which is precisely why I said the current price is unstainable, as I discussed in my previous post.
Posted by: JDH at January 31, 2007 07:11 PM
Considering current inflation oil should be around $50/bbl under normal circumstances so factoring in conditions the price of oil is actually pretty much in line with where it should be.
Posted by: DickF at February 1, 2007 08:21 AM
Jim Puplava (of Puplava Securities and financialsense.com) mentioned back on 13 January 2007 that Cantarell was declining at around 14%/year, Ghawar at around 8%/year, and Burgan (in Kuwait) at around 11%/year. The WSJ article's figures make Cantarell's drop more like 25% over the past year or so.
Posted by: Suresh at February 1, 2007 11:05 AM
Well, it's now Feb 5 and oil is now close to US$60 a barrel again so it looks like that earlier level wasn't sustainable after all. It didn't last a week from the original posting!
Lets "get real", if a sparrow farts in the direction of an oil asset the price goes up, and there's no better confirmation of depletion than the extreme volatility of the market right now. Supply is being outstripped by demand by a greater margin every day and surplus inventories are going to become emergency supplies in the very near future. With a US financial collapse due, higher oil prices will only "bring it on" sooner, I hope y'all have complete ownership of your homes cause it won't matter if you can't afford gasoline for your car, there'll be no reason to drive from anywhere to anywhere without a home address or a place of employment. Happy trails. Oh, if you own stock in anything I suggest you SELL SELL SELL!!!
Posted by: icurhuman2 at February 5, 2007 05:27 AM