Thursday, January 03, 2008

If News on OIL weren't bad enough...

There's turmoil enough in Mexico's state-run oil company, Petroleos Mexicanos, or Pemex, to see oil production from the world's sixth-largest oil producer drop by one third this decade, according to a report in the Los Angeles Times.

Output, exports and – that key statistic for Peak Oil watchers – proven reserves are all in decline. Peak Oil theorists believe the world has, or will soon, be tapping as much cheap, easy to access oil as is geologically possible. After that point, demand will exceed supply and the remaining oil coming to the market will cost much more, as it is drawn from hard-to-access sources like deep water deposits, oil shale and oil sands. (In Mexico's case, its main reserve is dwindling, but it has failed to explore for other sources to replace the declining output.)

In Mexico, as elsewhere, a political peak oil scenario, of sorts, may come first. Corruption in Pemex, a deadly accident on an oil rig and an attack on a pipeline by leftist guerrillas have all compromised the standing of the company and its oil infrastructure. The same story can be written about many volatile oil-rich regions, like Nigeria, Venezuela and the Middle East.

Mexico matters more for the U.S. than any others because, even though oil price is set by a worldwide market, much of the U.S. supply comes from the Western Hemisphere. Mexico is the No. 2 supplier of oil to the U.S., after Canada. At least, for now.

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