Cantarell Decline Rate 2X Pemex Estimates- Calderon Mulls New Tobacco, Pop Taxes To Fill Revenue Gap

[hatrack]

EDIT

Mexico, the world's No. 5 producer of oil, depends on it to fund 40% of its federal budget. Officials last year siphoned $54 billion from the state petroleum monopoly Pemex to finance public spending. High oil prices have resulted in tax windfalls over the last couple years but economists warn of a pending shortfall.

The nation's major oil field, Cantarell, is declining rapidly because of age. Production is down nearly 15% through the first 10 months of the year — more than twice the rate of decline predicted by Pemex officials last year. The company's worst-case projections show production plummeting to about 520,000 barrels a day by the end of 2008 — a nearly 70% freefall from October's average output of 1.65 million barrels a day.

Calderon's predecessor Vicente Fox tried to lessen Mexico's dependence on oil revenue by expanding Mexico's value-added tax, which functions like a national sales tax, to food and medicine. That proposal was rejected by Congress and got Fox branded an enemy of the poor. Some analysts say Calderon's narrower tax on cigarettes and soft drinks stands a better chance of passage. Congress will probably decide on the measure before officials break for Christmas vacation.

Paredes said the industry was lobbying legislators, but he said he feared that they would rally around the new president to show support. Mexicans are experiencing skyrocketing levels of obesity, heart disease, high-blood pressure and diabetes, largely because of unhealthful diets and lack of exercise. Increased taxes on Cokes and smokes could be used to offset soaring medical costs to treat these maladies.

EDIT

http://www.latimes.com/business/la-fi-mexcolatax12dec12,0,5548785.story?coll=la-home-headlines

[GliderGuider]

1. Calderon isn't even rearranging the deck chairs on Mexico's Titanic

He's just swapping around the cushions. A tax on pop to replace the income from a million barrels of oil a day? How much pop to the Mexicans drink?

[hatrack]

2. They drink lots and lots of it - at least according to this article

Having never been to Mexico, I can't vouch for this.

More to the point, I will advance the argument that this is going to evolve into the biggest story in US-Mexican relations, both economic and political, at least since the peso crisis of the mid-1990s.

With Cantarell production plummeting (FWIW, 15% YOY is a really, really fast rate of decline) and with few off- and onshore projects looking like they can even come close to filling its very large shoes, this loss of both government revenue and energy market clout is going to hit Mexico's economy like a brick hitting a window.

Watch Cantarell, watch Pemex and watch Mexico in 2007 and beyond very closely. This is going to be important.

[GliderGuider]

3. From the US perspective, this is indeed the Big One.

Mexico currently produces about 3.8 mbpd. The USA imports about 1.5 mbpd from Mexico. If Cantarell declines by 1 mbpd, the end resultt will be somewhere between the following bookend scenarios. If Mexico decides to keep domestic consumption at current levels (2 mbpd) the US will lose 11% of its oil imports, probably throwing the US economy into an immediate recession. If Mexico decides to fully honour its export commitments then their domestic economy will lose half its oil requirements - a catastrophic scenario likely to lead to national collapse. The likely scenario is somewhere in the middle, with Mexico defaulting on some proportion of its exports, but trying to keep enough domestic supply to stave off revolution.

Pressure on Canada to ramp up our tar sands production is going to be enormous when this happens - we are one of the sources the US will look to, to close the import gap.

We live in interesting times.

[phantom power]

5. If Australia is the drought "canary," maybe Mexico is the Peak Oil canary?

[GliderGuider]

6. The Peak Oil canary has already drowned in the North Sea

The news from Cantarell confirms that the peak has arrived. Three of the world's four largest oil fields (Da Qing, Burgan and now Cantarell) are known to be in decline, and the condition of Ghawar is falling under increasing suspicion. The official announcement of Ghawar's decline (I expect it within the year) will put the last nail into coffin of the Oil Age and signal the start of the Hard Times.

[NickB79]

4. A one million bpd drop in less than 2 years?!?!

:wow:

If things progress as badly as they probably will, I'll be forced to move back home to the family farm just to guarantee a roof over my head and food on my plate. Crap.