Tuesday, July 11, 2006

Look out, below! Mexico's oil economy crashing?

Dave over at The Oil Drum gives another country-ful of reasons why the United States should spend more on conserving energy than on building roads to waste it.

The Mexican oil economy, he says, may be on the verge of collapse. A much bally-hooed oil field discovery turns out not to be an oil field. The country's biggest oil producer, Cantarell, "is now in decline, perhaps radical decline."

The biggest bad news gusher: the state-run oil company is bleeding financially. According to The Oil Drum post: "To make a long story short, today PEMEX is actually losing money and heavily in debt despite oil prices hovering near $75/barrel. "

The post quotes the Dallas Morning News:

Yet the Mexican government has taken so much of Pemex's revenue (61 percent) and saddled it with so much debt (more than $75 billion, including pension obligations) that the company has had a negative net worth since 2002.

In May, the company reported net income of $700 million in the first quarter but a loss of $6.75 billion for 2005.

Dave concludes:

If the anticipated decline in Mexico's oil production should occur in the next few years, it appears that the consequences could be

  • A possible collapse of the Mexican economy, which is already shaky. If some of you think we have an illegal immigration problem now, think again. It's not hard to imagine many more refugees from Mexico attempting to enter the United States.
  • The problem in the US would be two-fold. The refugee problem just mentioned and the fact that we've lost a large percentage of our oil imports in a world where there is no spare capacity. This could precipitate a crisis which, as far as I know, no one has anticipated or is prepared to deal with.

Scary stuff. As of early 2005, the United States imported well over 1.5 million barrels of oil per day from Mexico.

It won't be easily replaced, no matter how much the George Bushes and Mark Green let Big Oil have its way. We need to think differently.

1 comment:

Epilogue said...

It's not the oil in Mexico that is the problem here. It is how the government treated the company.

As the article noted, high taxes and pension obligations are what are causing the problems for PEMEX.

Heed the warning here: don't confiscate revenues (taxes) to the point the company is unable to reinvest and don't saddle it with pension obligations that are so onerous that every dime coming in is already earmarked for retirees.

This is exactly the situation many on the left would create given their animosity to business here in the United States. You would tax business to pay for every social progrm under the sun and still expect the corporation to provide cradle to grave Cadillac benefits for its employees. No business could withstand that pressure.

Look at GM. It's pension obligations are upwards of $300 billion dollars while revenues are a fraction of that. Where is that money supposed to come from?

And if we are to be concerned over an economic crisis in Mexico, the last thing we should be doing is seeking ways to shield ourselves - rather, we should be giving them the tools to prepare their economy for it; expanding free trade, governmental reform, oil production and capacity upgrades. Short and long-term loan packages to Mexico also met with considerable success back in the mid-90's.

If we wean ourselves too rapdily off of oil - presumably Mexican oil - we will only precipitate the crisis.

I've got an idea that will work for everyone: how about Democrats stop blocking the construction of new oil refineries and the influx of refugees you are so afraid of will then have a place to work.

The uptick, then, is that America can accommodate it's own oil production by increasing supply from ANWR and have the capacity to refine said oil and consume said oil. That certainly would lessen our dependence on foreign oil and might mitigate the effects of a potential economic meltdown.