Mexico Poised to Deliver Worlds Greatest Oil Shock Since 1970s
With Mexico Poised to Deliver Worlds Greatest Oil Shock Since 1970s, U.S. Seeks Canadas Help. Of the five leading exporters of oil to the United States, Mexico ranks number two, ahead of Venezuela, Saudi Arabia and Nigeria and behind only Canada. Clearly, the U.S. economy cant live without Mexicos oil. And yet it may soon have to.
When reports first surfaced in 2006 that production from the worlds second biggest oilfield, Mexicos Cantarell, was showing worrisome signs of an imminent sharp decline, Mexican officials downplayed the problem.
Supplies of this economically exploitable resource are running out, the Latin American news agency, Prensa Latina, reported last week, quoting the Mexican state oil monopoly Pemex. How soon? Maybe in just seven years, Pemex acknowledged.
Even before then Mexico may become an oil importing country, Pemex reportedly also acknowledged, due in large part to Mexicos rapidly-rising domestic gasoline consumption.
Pemexs official admission that its oil tap may run dry in just seven years appears to at least partially explain why the spot price of crude has continued to rise when, normally, it would be going down at this point in the American summer, after the peak summer driving season. Interviews conducted last week by EnergyTechStocks.com with oil investors suggested that Cantarell is a very big deal and that it is only a matter of time until the impending Mexican oil shock is big news around the world.
The Bush administration has been keenly aware of the impending loss of Mexicos oil for some time, according to an official source. The White House is also aware that only Canada has the available supply and, just as importantly, the political climate necessary to bail America out, though whether it can remains, at this point, an open question.
U.S. industry and government officials have been talking with Canada about a sharp increase in production from the Alberta oil sands region since at least early 2006, according to Canadian press reports. In response, Canadian oil output, nearly all of it from Albertas oil sands, is forecast to be up 9% this year.
But while some $100 billion of further investment in Alberta oil sands production is scheduled by oil companies, further ramping up of production wont be easy.
For one thing, it takes a lot of natural gas to separate the gooey, sticky oil from the sand, so much so that some natural gas analysts have warned that Canadian natural gas exports to the U.S. could plummet in the next few years, though increased imports of LNG (liquefied natural gas) may be able to offset this shortfall.
But even if sufficient oil can be extracted to meet the U.S.s post-Mexico needs, it may not be possible to get all of that crude to the U.S. The same day that news of Pemexs impending demise broke, Canadas energy regulator said that Alberta oil sands production was growing so rapidly that there wasnt sufficient pipeline capacity to handle it all. The regulator said rationing of pipeline capacity might have to be instituted as early as this fall.
Even if Canada does come to Americas rescue, the price tag will be steep. Extracting tar sands oil is much more expensive than recovering liquid crude. By some estimates, tar sands oil is economically exploitable only when oil costs very roughly between $50 to $70 a barrel. This means that as tar sands oil becomes a bigger percentage of Americas total oil imports, oil prices generally will go higher.
There would appear to be little hope for preventing a Mexican oil shock. Even if large investments in new development wells were made quickly, Pemex reportedly indicated that its reserves would likely still run out in perhaps 10 or so years.