Mexican production may decline in few years

Thursday, February 09, 2006

The Wall Street Journal reports on a possible decline in Mexican oil production:

The latest worry about petroleum comes from Mexico, where the huge state-owned oil company may be facing a steep decline in output that would further tighten global oil supply and add to global woes over high oil prices, The Wall Street Journal reports. The potential decline faced by Petroleos Mexicanos would undermine U.S. efforts to reduce dependence on Middle East oil. An internal study reviewed by the Journal shows water and gas are encroaching more quickly than expected in Cantarell -- Mexico's biggest oil field and the world's second-biggest producing field after Saudi Arabia's Ghawar -- and might cause output to drop precipitously over the next few years.

Pemex says it is confident it can make up for any decline at Cantarell by squeezing more output from other fields, but some analysts outside the company are far less sanguine, the Journal says.

A significant decline in Mexican output would put further pressure on global oil prices -- already high thanks to a refining bottleneck and surging demand, especially in China and India -- and it would also be bad news for the U.S., which relies on its southern neighbor as its No. 2 source of oil after Canada.