Mexico and the Import-Land Scenario
Ian has asked me to post on items of interest to me in the foreign policy realm. The destabilization of Mexico has been an area that has been pinging my interest for several years now. This is a piece I put up at the Newshoggers in mid-March of this year.
The Latin American Herald Tribune reports that Mexico’s oil reserves are shrinking:
Pemex also said the 2009 reserve replacement rate, the ratio of new reserves to oil produced, came in at 77.l percent, more than triple the rate of 22.7 percent registered in 2005…
While in 2007 the country produced an average of 3.07 million bpd, output fell to 2.79 million bpd in 2008 and now stands at roughly 2.6 million bpd. That has put a strain on public finances because oil revenues fund roughly 30 percent of the federal budget.
[h/t the Agonist]
Mexican oil is overwhelmingly consumed in two places. The first in in Mexico at a rate of slightly more than 2 million barrels per day. The second is in the United States as the US Gulf Coast absorbs roughly 95% of Mexico’s oil exports. At $70 per barrel, which was the price Mexico received last year due to a very smart hedge, exports are worth roughly $42 million dollars per day, or $15 billion per year. Net export rates have fallen significantly over the past three years, as Mexico had exported to the US slightly more than 1 million barrels per day in 2008.
Some of this decline in net exports, and thus net hard currency cash flow is due to a decline in Mexican production. However some of it is also due to an increase in domestic demand, so we enter the export-land model where the decline rate for net exports is significantly higher than the overall net production rate. And with that model, Mexico goes from a net oil exporter and thus hard currency earner to a net oil importer paid in dollars or euros fairly quickly.
This is the trend that means the Mexican state will need to find some way to either reduce expenditures by a significant margin, or re-arrange the state so that taxes are stabilized in a manner that does not piss too many people off. It is this trend that can be accelerated by a concentrated hammering by the various cartels on the oil export infrastructure, but even with no intervention by the cartels, the Mexican government’s ability to fund itself under current arrangements will continue to decline.
Comments are closed.
Don’t overlook the quantities of petroleum consumed by agriculture that is exported to the US; the fertilizer and pesticides are petroleum consumed indirectly and are accountable on the balance sheet as is the water used to grow the exported crops. The US on the other hand exports their drug dependency, weapons, war on paranoia, and fatal economic ideologies. The Mexican people were better off when they grew their own corn and beans, it seems.
p.s. welcome to Ian’s place.
Enter the drug trade. Interesting article over at the Agonist, Mexico Failing on Purpose, which links to a StratFor report:
What F-T_Bear says, welcome aboard!
Tb and Alyosha — thanks for the kind words, and Alyosha, I’m writing a piece riffing off the Agonist piece, more in lines of a domestic examination of the incentives for failure instead of the speculation on Mexican motives for ‘failure’.
Thanks for this illustration of the mounting supply and demand problems oil consumers will be facing in the near future. Ian recently seconded Matt Taibbi, Yves Smith et al. claiming that the high oil prices of ’08 (and late ’07) should be blamed to a not inconsiderable extent, though not to a specified one, on speculation in oil futures. (In her book, Yves does cite a Shell Oil exec who, at the end of ’07, said there’s plenty of $60/bbl. oil to go around to anyone who wants it for the next 15 years barring manipulations of the market by speculators and producers.)
I’m in the camp that believes our problems are, by in large, of a quite fundamental nature. That said, the “Business Insider” article you link to claims:
>>>>>>>>>>>>>>>>
Mexico’s oil reserves have decreased by more than 75% in two decades (owing partly to the correction of a previous, ridiculously inflated figure), production has begun to decline, and exports are falling fast. It now imports $4.5 billion a year worth of gasoline, $10 billion a year in petrochemicals, and 25% of its natural gas, mostly from the U.S.
This despite having nearly 13 billion barrels of proven oil reserves and more than 50 billion barrels of (unproven) reserve potential. Mexico would be in a far better position, were it not for its hostile stance on foreign participation. PEMEX simply lacks the technical ability to develop its more difficult, remaining resources–particularly deepwater.
<<<<<<<<<<<<<<<<
Do you concede that Mexico’s oil revenue prospects might change dramatically if certain political adjustments are made?