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July 24, 2006

Cantarell's Steep Decline Peak Oil

Grim news. Mexico's Cantarell oil field, the world's second largest producer, is apparently in free fall. LA Times:

Output at Mexico's most important oil field has fallen steeply this year, raising fears that wells there that generate 60% of the country's petroleum are in the throes of a major decline.

Production at Cantarell, the world's second-largest oil complex, in the shallow gulf waters off the shore of Mexico's southern Campeche state, averaged just over 1.8 million barrels a day in May, according to the most recent government figures. That's a 7% drop from the first of the year and the lowest monthly output since July 2005, when Hurricane Emily forced the evacuation of thousands of oil workers from the region.

Though analysts have long forecast the withering of this mature field, a rapid demise would pose serious challenges for the world's No. 5 oil producer. The oil field has supplied the bulk of Mexico's oil riches for the last quarter of a century, and petroleum revenue funds more than a third of federal spending.

"Cantarell is going to fall a lot, and quickly," said independent consultant Guillermo Cruz Dominguez Vargas, a former executive with Mexico's state-owned oil monopoly, Petroleos Mexicanos, known as Pemex. "I can't imagine the strain on this society if there is nothing to replace it."

It would also be bad news for the United States, for which Mexico is the No. 2 petroleum supplier, behind Canada. And it could exacerbate tight global supplies that have kept oil at record prices. [...]

Exceeded in size only by Saudi Arabia's leviathan Ghawar field, Cantarell is a prolific giant that is past its prime. Monthly production peaked in late 2004 at just over 2.1 million barrels a day and has fallen more than 15% since then. Experts agree it has nowhere to go but down. [...]

Seawater is threatening to swamp the wells of Cantarell as the field's pressure diminishes, a debilitating symptom of old age that makes it tougher to extract the remaining oil. Leaked internal reports of Pemex's own worst-case scenarios published in Mexican newspapers show production plummeting to about 520,000 barrels a day by the end of 2008 — a 71% free-fall from May levels in less than three years.

Mexico City energy analyst David Shields said the swift drop over the first five months of 2006, and conversations with Pemex insiders have convinced him that prospects at Cantarell are worse than officials will admit publicly. June figures for the field won't be available until later this month. But Mexico's overall crude production fell in June, the third straight monthly decline, making it unlikely that Cantarell staged a revival.

"It's doing very badly," said Shields, general manager of Energia a Debate, an industry trade publication, and the author of two books on Pemex. "My reading of the situation is that it's dire." [Emphasis added]

Sign of the times. Producers have every incentive to hide their problems until they cannot be hidden any longer. As a result, declines, when they come, will tend to come suddenly and precipitously. In other words, we are almost certainly in worse trouble than we know. How long before we get similar news from Ghawar?

Posted by Jonathan at July 24, 2006 10:42 PM  del.icio.us digg NewsVine Reddit YahooMyWeb

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