Events

Oil Security and Friendly Suppliers: Where Are We Now?

May 14, 2009 // 3:00pm5:00pm
Event Co-sponsors: 
Mexico Institute

Mexico will be unable to sustain its current level of oil exports to the United States, said Duncan Wood of ITAM at a conference hosted by the Woodrow Wilson Center's Canada, Mexico, and Brazil Institutes. The conference assessed the potential ramifications for the United States and Canada of shifting North American oil supplies in light of Mexico's projected decline in oil production. The conference also examined the prospects of Brazil emerging as a major supplier of oil to North America. Wood was joined on the panel by Joseph Dukert, an independent energy consultant, and Otavio Cintra of Petrobras.

Mexico has consistently been one of the top three sources of U.S. oil imports. According to Wood, Mexico's oil exports to the United States rose steadily throughout the 1980s and 1990s before peaking in 2004. Since then, slowing production from Mexico's Cantarell oil field and the absence of significant new discoveries have led to a decline in Mexico's oil production and exports. In fact, Wood said that oil production at Cantarell has declined so much that it no longer represents Mexico's largest source of oil—Mexico's Ku-Maloob-Zaap (KMZ) oil field overtook Cantarell as the country's largest producer in March 2009. This is extremely significant since Cantarell produced three times as much oil as KMZ just two years ago.

Wood maintained that while Mexico has significant oil reserves left in the Gulf of Mexico, Pemex, Mexico's state-owned petroleum company, does not have the technology necessary to recover the oil. He also said that the Mexican government has staked much of its hopes for the country's future oil production in its Chicontepic oil field. Although the Mexican government believes Chicontepic will be able to produce between 550,000 and 700,000 barrels of oil per day by 2017, Wood said that the complex production, high investment, and new technologies required to extract the oil may make reaching such a target extremely difficult.

Wood described the future of Mexico's energy sector as increasingly bleak. He estimated that rising energy demand and shrinking production will result in Mexico losing its status as a net exporter of energy by 2025. Consequently, the United States will have to turn to other suppliers in the near future to make up for the expected shortfall in Mexican oil exports.

The Future of North American Energy Security

Mexico's declining oil production does not pose a threat to North American energy security, said Dukert. He explained that Mexico's oil production does not represent a large enough share of the world market to drastically affect the price of oil even if its oil production sharply declines. Dukert also pointed out that while Mexico's oil production is falling, the country's natural gas sector is thriving and likely to produce a record output of the resource in 2009. This record output, combined with the increasing capacity of Mexico's domestic natural gas generation, will enable the country to free up some of its oil production for export. In addition, North America's continued development and use of renewable energy sources will also lessen the continent's need for oil, said Dukert.

Dukert argued that while Mexico's decline in oil production may not pose an imminent threat to North American energy security, each NAFTA member faces similar energy challenges and calls to reduce carbon emissions. Canada, noted Dukert, has peaked in conventional oil production and the country's ability to increase its oil exports to the United States relies heavily on the continued development of Alberta's oil sands, which poses its own set of environmental challenges. Consequently, Canada, the United States, and Mexico would benefit from working collaboratively on energy and environmental issues through existing trilateral institutions, such as the North American Energy Working Group, to help ensure the continent's economic prosperity and energy security is maintained.

A question addressed throughout the conference focused on whether Brazil's recent oil discoveries might enable the country to increase its exports to the North American market. Panelists noted that Brazilian oil exports to the United States are already increasing. Cintra suggested that Brazil will be in a strong position to bolster its oil exports in the near future, thanks in part to substantial offshore oil and gas discoveries made in Brazil's Espirito Santo Basin. Cintra noted that Petrobras' current oil production in Brazil alone is expected to increase from current levels of 2.05 million barrels per day to 3.92 million barrels per day by 2020. He acknowledged, however, that Petrobras will have to overcome several challenges in order to meet future production targets, including maintaining a sufficient workforce for construction and operations, and having the necessary capital and investment available to develop new oil sites.

Drafted by Ken Crist, Program Associate, Canada Institute

 

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