Is Mexico on Its Way to Becoming an Oil Importer?

The question of Mexico’s viability as a key supplier of oil to the the U.S. is of great interest in terms of the price of oil, the strategic security of U.S. oil supplies, and the viability of Mexico as a self-governing state.  The latter point is emphasized by the respected Mexico observer George Baker as quoted in this article.  Baker is confident that Mexico will continue to be a substantial oil exporter because, as he notes, Mexico’s financial viability - and thus its domestic tranquility, to the extent it has much left given that it is fighting both drug-related and political violence - depends on it.  

But Mexico’s need for sufficient oil does not guarantee they will get it.  If Mexico is only 4 years away from becoming an oil importer as this piece suggests (I think it is now more like 6 years in view of the global recession), that is not a lot of time to explore, find, and exploit enough oil to make a big difference. 

Mexico remaining an oil exporter is clearly key to U.S. national security and U.S. law and order in addition to the U.S.  ability to obtain enough oil.  Remember that China is out gobbling up all the oil supplies it can obtain from any country that will contract with it.   All those deals diminish the amount of oil available on the “global free market” for the U.S. to import if it can no longer depend on Mexico for 1.4 mb/d - about 6% of all U.S. oil use.  It is unlikely Canada could gear up in time to supply that additional amount, especially with the oil price around $60 at present.    

I’ve suggested that unless Mexico can pull a rabbit out of the hat on new oil finds, it could well become a failed state, a possibility pregnant with dire consequences for the U.S.  Mexico’s new law lets PEMEX reduce its tax payments to finance oil exploration.   Will Mexico’s Congress react to the reduced oil taxes by increasing other sources of income for their federal budge, 40% of which is currently coming from PEMEX?   If not, Mexico could be in deep trouble even before oil production actually declines to the point of eliminating exports. 

Comments

[Kunst:]

it is interesting that the oil fever of just a few months ago has been so thoroughly quenched so quickly. Six months ago, the fact was that we have a serious oil supply problem not far way but current prices were inflated by speculation (to the point of some market--cornering). The fact today is that we have a serious oil supply problem not far away but current prices are deflated by hedge fund bailouts and frozen credit. No matter how you cut it, the oil crisis is real, it's going to get worse, and there isn't a lot of time until it is a real crisis, with no solution in sight.

2008 Nov 15 07:41 PM

[Greg Pinelli:]

These are great days my friends! The recent IEA report was truly a tipping point...they've always been optimistic about future supply and by 2030 we'd all be rolling in new oil. Well..there's going to be very little new oil. This is the way it will play out...
The current $55 and change price has..along with tight lending lines....put a hold on some VERY significant projects that were sure things just months ago. The reult? When liquidity does start working thru the system..late Winter to early Spring 2009 it will take many months to reactivate supply. Product from field field decline..like our old standby Cantarell..will continue to deplete at rapidly escalating rates...The upshot..
Played out on an international scale demand may well drop 5% from 2008..The problem is product could well fall 8-10% short.In other words, at the margin prices go very much higher.
March to April 2009...WTI @ $75-85..By mid Summer we cross back over $100...AND ALL THAT ACTUALLY DEPENDS ON CHINA BEING AN UNDEPENDABLE CUSTOMER!
The market can make oil any price it likes over the next 2 months..all it is doing is using the future supply rope to hang itself...geology can't be bailed out or BS'd into a more pleasant reality...

2008 Nov 16 12:17 AM

[Sober Realist:]

Georealist has it right. Now I'm expecting Brian Pursley to comment on this article in order to spread his fantasy gospel that "oil is infinite."
The supply side of oil is getting ravaged as much or more than the demand side. What will make the next oil spike even more acute is the credit crisis that has enveloped the world and is causing big oil projects to be mothballed left and right. The Canadian oil sands, once touted as having "more oil than Saudi Arabia" and which currently account for 2 MBPD of U.S. imports, have been the hardest hit by the credit crisis
and collapsing oil prices. Having a highly energy intensive extraction process, Canadian oil sands are not economically feasible when the price of a barrel sinks below $80 per barrel. As Qatar's oil minister recently warned, oil prices below $70 a barrel will cause a new supply crisis. "Under this scenario, future demand will face a shortage and there will not be enough investment to cope with demand increases." He is correct. We are setting ourselves up for major future supply constraints. The general public doesn't understand this and most are not aware of the seeds being sown. Try explaining to the average person that Big Oil is not gouging them at the pumps.
Exacerbating the situation for America in particular is that this energy crisis is building at a time when our national debt load is ballooning out of control. Unlike in the 1930's, the U.S. is no longer a creditor nation nor energy independent. It seems inevitable to me that the status of the dollar as the world's reserve currency will be replaced by a basket of commodites or other currencies.

2008 Nov 16 11:08 AM

[Pipo:]

Jim Rogers said that Mexico, Malaysia andd the UK will be importing oil within a decade. This will be very bullish for oil prices.


www.jimrogers-investme...

2008 Nov 17 02:00 PM

[Steven Ward:]

The only reason the US government supported the one party state in Mexico in the past was the horrific losses in the last Mexican Civil War--1 million dead. The US wanted stability above political freedom in Mexico.
Mexican oil production and Mexican political stability are indeed linked. Mexico has long had trouble ruling itself. From her New Mexican Territories to her Californian Territories: one only needs to read the historic dispatches from the governors of those territories to see the constant complaint of lack of support from the central government. About one hundred years of complaints.
About 15 years ago the Mexican government ran a pole of its people. Various questions were asked of various age groups. One question was sovereignty over economic wel being. 80 percent of the people under 24 years of age responded that if economic vitality was only possible by becomming part of the US or a North American Union they would approve of such a union.
That pole caused the central authorities to throw a larger amount of the oil revenue into primary education and poverty reduction. It also led in part to the introduction of nitrogen recovery for Cantarell in order to produce more oil quickly which is now causing Cantarell's massive decline.
The result is that Mexican poverty has been cut in half and that the central government has made tremendous gains in getting nearly every Mexican kid through high school even the remote indigenous Indians.
But now what? The oil may have been the linch pin holding the country together given her history.

2008 Nov 18 07:03 AM

[Ferdinand E...:]

Short but very useful, except for the thing about Mexico becoming a failed state. There is a lot of talent in that country, and what they need is a government that can organize it.

2008 Nov 18 01:52 PM