Energy Security

[Ski]

I've been doing quite a bit of research on the Mexican oil industry as part of a SAMS exercise over the last two weeks.

Mexico is in really bad shape and it's only going to get worse.

Their largest field, Cantarell, is dropping off the charts in terms of daily production. It's expected to go below 700,000 barrels a day by the end of the year, and under 400,000 barrels a day by 2012. The US Energy Information Agency said earlier this year that Mexico will be a net importer of crude oil by 2017. Why is this important?

1. The Mexican oil industry is nationalized. 40% of the federal budget comes directly out of oil profits. If they become a net importer, not only do they lose a significant percentage of the federal budget, they will lose additional federal funds in order to meet the import requirements.
2. Mexican demand is expected to rise 10-15% by 2017.
3. Mexico is the third largest importer of crude oil to the US. In 2005/6, the US was getting 1.2/3M barrels a day shipped northward.
4. The US is actually subsidizing Mexico's economy by running a trade deficit of $65-90B dollars per year (the numbers vary depending on what source), of which about $40B comes from oil profits.
5. If the Mexican federal state cannot develop new fields (and they've spent literally nothing in terms of exploration or infrastructure sustainment) , they will not anything to replace that lost income, and I suspect there will be a crisis of political legitimacy within Mexico.

[davidbfpo]

Coming to the rescue - shale oil? See:http://www.spectator.co.uk/business/...-arrived.thtml He has written other articles that IIRC read "It's OK". The author has worked for BP and as a (London) city journalist.

[Bill Moore]

In article posted by David,

All this presents us with an unexpected problem. Gas is cheap, abundant and low-carbon. There could well be vast untapped resources of it in Europe. The Chinese may find their own supply, turning the global gas equation from one of excess demand to one of too much supply. All told, shale could be the biggest energy breakthrough since the North Sea oil discoveries of the 1960s. If so, it will be time for our energy planners to head back, once again, to the drawing board.

Interesting, and while I have read several article on new NG finds, I have also read others that indicate these new gas finds are rapidly depleted once exploitation starts, much faster than anticipated. Need to research this one some more. The other obstacle, or opportunity, is for gas to replace either coal or oil, there is a considerable amount infrastructure work required to make this feasible. You can't move gas in the same pipelines you push crude in (compressors instead of pumps) or in the same type of rail cars you move coal in. I hope the article is accurate, but I remain skeptical.

Rick M,

I'm surprised that the news of EXxon-Mobil sabotaging oil wells in Texas is making the headlines (makes you wonder who owns the media). They don't seem to be denying it, just claiming that is too late to press charges?

[slapout9]

In article posted by David,



Interesting, and while I have read several article on new NG finds, I have also read others that indicate these new gas finds are rapidly depleted once exploitation starts, much faster than anticipated. Need to research this one some more. The other obstacle, or opportunity, is for gas to replace either coal or oil, there is a considerable amount infrastructure work required to make this feasible. You can't move gas in the same pipelines you push crude in (compressors instead of pumps) or in the same type of rail cars you move coal in. I hope the article is accurate, but I remain skeptical.

Bill, I think it is pretty accurate and there are a lot of articles out there about it, but it has a problem. The process to get the gas is called hydraulic fracturing, using water to break up the shale. It requires huge amounts of it, which is why some military people are saying the new Liquid Wars will be about water as opposed to crude oil.

[Rick M]

Ski, you are correct re. Mexico.
Jeff Rubin predicted that Mexico will be finished as an exporter of significance by 2012. The 2017 date is widey regarded as an outside figure.
How the US will make up for the loss of its #3 supplier remains to be seen.
Saudi Arabia, Iraq and tar sands expansion may do the trick.
A more intractable problem may be that of having a failed narco-state next door.

David and Slapout, I agree with Bill on shale gas.
I disagree with Trefgarne on many points, but here are a few:
- He (along with many others) attributes the current glut and low prices to SG. SG is only a small part of overall North American NG supply.
- Contrary to his talk of "an early snow this winter" (ie. high demand??), this fall has been uncommonly warm in eastern Canada. Our winters aren't what they used to be, and NG heating demand has been down for several years.
We also had a very cool summer, hence low demand for NG to power A/C.
- The fact that $4.50 cannot support a SG industry escaped Mr. T.
Art Berman provided a reasoned, meticulous analysis of the economics of SG at the international ASPO conference last month:
http://www.aspo-usa.com/2009proceedi...tober_2009.pdf

Unfortunately, Art's call for critical thinking on SG quickly cost him his job at World Oil.
Furthermore, World Oil's long-standing editor, Perry Fischer, was suddenly fired:
http://petroleumtruthreport.blogspot...er-editor.html

Surely we have a dangerous situation when the only voices that will be tolerated in the oil world are those of the optimists.

Slapout, you are correct on the water issue.
Both SG and shale oil require lots of water, and there are increasing reports of fracking fluids contaminating water-wells.
The top of the Marcellus SG deposit is under the watershed which supplies NYC, so there are growing concerns about allowing drilling in that area despite its excellent SG potential.

[Rick M]

Sorry, something else from the Trefgarne article.
He says that people "can re-route a cargo at the press of a button, making supply infinitely more flexible to demand."
He is correct about LNG cargoes being suddenly re-routed, but it's happened because somebody offered considerably more for the cargo.
That's flexibility all right, but it's hardly security of supply (what about the original contractor who still needs the LNG?).

More at the Berman thing just appeared in the Financial Times:
http://www.ft.com/cms/s/0/3ea7c35a-d...nclick_check=1

I spoke with Art at length in Denver and he struck me as a very intelligent and honourable fellow... not plugging a book, no axe to grind... simply urging caution and critical thinking on various aspects of shale gas.
He's exactly the sort of person whom I would want to safeguard the energy needs of our grandkids.

[Rick M]

Again, I apologize for popping in & out like this, but I keep finding stuff that I think will be of interest.

Ski, further to your points about Mexico, this was just posted:
http://www.reuters.com/article/featu.../idUSGEE5AL039