Thursday, September 27, 2007

Future Shock: Peak Oil in Mexico

Now that Greenspan has confirmed that the occupation of Iraq is about oil, it's time to pay close attention to the crisis in dropping oil production that some refer to as Peak Oil. Many say that oil production has already crested, and the evidence is clear and convincing.

Astute observers of the looming oil crisis are urging us to reconsider the way we build and site our homes and public buildings, the cars we buy and modes of public transport.

From James Kunstler, author of The Long Emergency, writing at Civitas: The Broadside of Civic Design and Politics, talks about Mexican oil production and what Mexican Peak Oil will bring to the already troubled U.S./Mexican relationship.

...Something very interesting and rather ominous is resolving out of blizzard of statistics, reports, scenarios, and competing interests in the background. This is the oil export crisis.

It is now apparent that oil exporting nations are seeing their exports falling at a much steeper rate than their production declines. The aggregate global oil production decline is running between 3 to 5 percent annually now, but the export decline is running above 7 percent. In five years, it may be as high as 50 percent. That means the major importing nations (the US, Europe, Japan, China, India) will only be getting half the imports they get now -- and bear in mind that the US imports more than two-thirds of the oil we use.

The poster-child for this problem -- as far as the US is concerned -- is Mexico. 60 percent of Mexico's oil production comes out of a single super-giant field, Cantarell, off the Yucatan in the Gulf of Mexico. Cantarell is the second largest oil field ever discovered (after Saudi Arabia's Ghawar). It came into production relatively late in the oil age and was subject to very aggressive drilling with the latest technology (horizontal bores, gas injections to keep pressure up) with the result that it was only depleted more efficiently. The aggressive production may have also damaged its geologic structure. The net result now is that production out of Cantarell is crashing very steeply, at a minimum of 15 percent a year. That means in six or seven years, Cantarell is finished. However, long before then, Mexico will lose its ability to export oil to the US.

That's going to be a mighty big problem -- or set of problems. For one thing, Mexico is America's number 3 source of oil imports (after Canada and Saudi Arabia). So, in two or three years, we will lose our number three source of foreign oil. By the way, there is no real evidence that "new discoveries" oil "new production" anywhere in the world will offset global production drops. The Mexican government depends on it's nationalized oil production (Pemex) for 40 percent of its operating revenue. So, what we're also looking at South-of-the-Border is the potential for a lot of economic and political turmoil as the Mexican government loses revenue and loses its ability to maintain its social safety net (which includes food subsidies).

The upshot of all this is that the US is likely to see a ramp-up in illegal immigration. The last time there was turmoil in Mexico -- the long revolution that ran from 1913 to 1940 -- one quarter of the Mexican population left, and most of them landed in the US. The population of Mexico then was about 23 million. Now it's over 100 million. If this turmoil escalates into violence, the US may even have a military problem with Mexico.

As this occurs, though, there will be plenty of other trouble with oil resources elsewhere around the world, and that will be reflected in global finance and the condition of national economies. The US consumes close to 20 million barrels of oil a day, and we produce less than 5 million.

Something will have to give.

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