Sunday, February 22, 2009

Trouble for Mexico's oil sector

Petroleos Mexicanos (PEMEX), Mexico's state oil conglomerate said on Friday, crude oil output fell 9.2% in January.

Cantarell, one of Pemex's largest oil fields and the third largest in the world, saw output plunge at its fastest rate in over 14 years. Pemex says the field is currently producing around 772,000 barrels a day, down a whopping 38% from a year earlier.

overall production fell to 2.885 million barrels a day, down from 2.957 million barrels a year earlier.

“If the question is, what is Pemex going to do in the short-term to prevent the falling production?” George Baker, a Houston-based energy consultant who publishes the newsletter Mexico Energy Intelligence, said in an interview. “I’m afraid the answer is nothing.”

On a positive note, Pemex's natural-gas output rose 8.5% to 7.091 billion cubit feet in January. Too bad natural-gas fell below $4 per million British thermal units for the first time in more than six years (see this Bloomberg article for more)

All in all, Pemex and more importantly the country of Mexico need to re-align their economy away from the oil sector. This has proven rather difficult in the past, as it has as well in other Latin American country's which rely too heavily on a particular basket of commodity exports.

The current global recession is once again evidence of how dangerous a commodity focused growth strategy in reality is.

For Mexico, the situation is even more dire. Crude oil and natural gas, as you can see below (and have probably heard) are not selling for what they used to.

Close proximity to the US, heavy reliance on money from relatives working in the US, a declining oil industry and the general erosion of their competitive edge in manufactured goods because of the rise of Asia put Mexico in a particularly difficult situation.

I in no way consider myself a expert on Mexico. As a matter a fact, I have purposely left Mexico out of much of my academic writing due to the unique Macro-Economic conditions facing the country. Check out this site for a great read on Mexico (