Thursday, February 09, 2006

Page A4, with a bullet.

The world's second most productive oil field might be about to cause a big problem with oil supply, and the WSJ puts this on page 4?

WSJ: Mexico's Oil Output May Decline Sharply.


Pemex Study Points to Possible Drop At Major Field, Which Would Strain Global Supply

MEXICO CITY – Mexico's 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.


An internal study reviewed by The Wall Street Journal shows water and gas are encroaching more quickly than expected in Cantarell, Mexico's biggest oil field, and might cause output to drop precipitously over the next few years. Currently, Cantarell produces two million barrels of oil a day, or six of every 10 barrels produced by Mexico. It is the world's second-biggest-producing field after Saudi Arabia's Ghawar.

Pemex, Latin America's biggest company by assets and employees, 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 study, carried out last year by Pemex experts, offers a rare glimpse inside the traditionally secretive oil company. It outlines five scenarios for a decline at Cantarell, four of which are more pessimistic than the company's current public forecasts.


Mexico has been bracing for a decline in Cantarell for years, and previous predictions of imminent decline have turned out to be wrong. But the internal study is the most complete look at the field to date.


"In my mind, this report suggests a collapse scenario is the most likely," says David Shields, an energy consultant in Mexico who first published the study's findings. Mr. Shields doubts Pemex can make up for lost output at Cantarell because it only discovers one new barrel of oil for every 14 it extracts at the moment, leading to falling reserves.

Other analysts agree with Pemex's official assessment, however. Matthew Shaw, head of Latin America research for Scotland-based oil consultancy Wood MacKenzie, says he has never heard of a major field declining as fast as the worst-case outcomes outlined in the study.