Tawei Liao

Mainstream media on Mexican oil production

The mainstream media always try to explain the fall in Mexican oil production due to political and technological reasons.  A typical story is this one from the NY Times by Clifford Krauss and Elizabeth Malkin.  Here is a quote:

Mexico probably still has plenty of oil, especially beneath the deep waters of the Gulf of Mexico, but Pemex lacks the technology and know-how to get it out. Inviting foreign companies into the country to help is one of the touchiest propositions in Mexican politics.

This explanation is pure nonsense. Pemex already has access to foreign technology.  One does not need to design and build a high tech offshore drilling platform.  One can lease a drilling platform from companies like Transocean for $500K/day.  A lot of foreign technology is already in use everyday.  We can blame lack of funding because the Mexican government uses Pemex as a piggy bank.  But we cannot blame lack of technology.

A simpler explanation is that Mexican oil production peaked in 2004-2005 and has gone into irreversible decline.  The following chart is from Greg Macdonald’s blog gregor.us.  He writes extensively on Mexico. Cantarell is Mexico’s largest oil field.  And as you can see below, production peaked in 2004-2005 and is in sharp decline.

Cantarell Peaked

Mexico will not be an oil exporter in another 5 years.  It will be an oil importer.  What will happen to the Mexican economy as the government can no longer subsidize the price of oil for its citizens?  What will happen to the Mexican government budget as oil export revenue dries up?