The giant sucking sound, revisited

Remember the metaphorical “giant sucking sound” Ross Perot invoked in the 1992 presidential debates? Perot employed that image to characterize the rapid exodus of jobs to Mexico that would surely result from ratifying the North American Free Trade Agreement.

Fifteen years later, that vivid phrase could appropriately describe the increasingly desperate circumstances befalling Cantarell, Mexico’s largest oilfield, situated about 50 miles off the coast of the Yucatan Peninsula.

The giant sucking sound you might hear at Cantarell is what happens when hundreds of oil wells begin drawing gas and water from the very reservoirs that used to yield copious quantities of petroleum. It’s the sound of an oilfield rolling over its peak.

To American ears, the name Cantarell evokes a casual, Southwestern feeling, more suggestive of a dude ranch than the world’s No. 2 oil field. By far the most productive oil reservoir in the Western Hemisphere, Cantarell was yielding more than 2 million barrels per day (bpd) as recently as 2005, outperforming all other fields, save mighty Ghawar in Saudi Arabia. At $50 per barrel, that level of production translated to $100 million a day. When a wealth generator of that magnitude starts to sputter and lose productivity, other oilfields must pick up the slack, or else the Mexican economy is bound to take a hit.

Unfortunately, the most recent numbers from PEMEX, the state-owned oil company, don’t justify confidence. Output from Cantarell fell by nearly 500,000 bpd to about 1.5 million bpd in December 2006, a 25 percent decline from 2005’s totals. Cantarell’s swoon took PEMEX’s total output below the 3 million bpd level for the first time in six years. PEMEX exports more than half of its crude to the United States alone; only Canada exports a larger volume. Since Cantarell’s output is roughly equivalent to Mexico’s total exports, production declines will be felt in the United States, which will have no choice but to offset the loss by purchasing more expensive crude on the international market.

Make no mistake, a production crash at the world’s second-largest oilfield will have an effect on import volumes and the price of crude. In fact, oil markets have already taken notice. In mid-January, the per-barrel price of crude briefly sagged below the $50 mark. Since PEMEX’s admission two weeks ago, the markets have rebounded somewhat.

PEMEX is working to expand output from other fields to offset continued losses at Cantarell, which are expected to average 15 percent a year. To meet that objective, PEMEX will inject nitrogen into the largest of the remaining oilfields, increasing reservoir pressure and flow rates. No doubt that will help, as Mexican crude is on the heavy side of the spectrum. But as demonstrated at Cantarell, where nitrogen injections since 2000 produced substantial gains in flow rates, once the practice is discontinued, output drops sharply.

If the projected annual decline rate is accurate, Cantarell will drop out of the million bpd club by 2010. As noted in the Wikipedia entry for Cantarell: “This rapid decline is postulated to be a result of production enhancement techniques causing faster oil extraction at the expense of field longevity.” Indeed, the consequences of nitrogen injection on an oilfield are not at all dissimilar to the effects of anabolic steroids on power hitters, both during and after usage.

To increase output at Cantarell, PEMEX constructed the world’s largest nitrogen-producing plant. This facility, which was dedicated entirely to Cantarell, consists of four production lines, each with their own air separation units and natural gas-fired tubines. A fair amount of natural gas is sacrificed to capture nitrogen and pipe the gas 50 miles away to liberate more of Cantarell’s crude from the sea bottom. From the perspective of the Mexican government, whose taxes on PEMEX profits account for 37 percent of its budget, the effort was worth it, at least while production was going up.

But now, having reached Cantarell’s downslope, the Calderón government finds itself hopelessly squeezed between an implacable geological reality and the need to find a replacement cash cow. But if the news from Cantarell means that Mexico’s overall oil-exporting capacity is also in decline, then the government will have no choice but to limit petroleum consumption at home to prop up PEMEX’s export earnings, on which it is so dependent.

The other large revenue generator for Mexico is tourism. Increasing oil extraction activity has been a long-time pillar of Mexico’s economic strategy, to keep the cost of jet fuel low enough to ensure more and more planefuls of Yankee and European tourists coming over to visit its beaches, mountains and ruins. Mexico’s dependence on tourism revenues provides additional motivation to emphasize oil exports over domestic consumption.

An America that is distracted by loonball astronauts and celebrity inquests has no clue about the meaning of Cantarell’s decline, nor is it in any position to appreciate the unprecedented gyrations that await Mexico’s economy and society. There will be ramifications to the United States, of course, especially if the Mexican government’s predictions that oil exports will remain steady turns out to be too optimistic. It stands to reason that a decline in Mexico’s public spending will result in greater economic hardship, which would likely hasten the volume of illegal immigration into the United States. At that point it may not be possible to hear the giant sucking sounds at Cantarell above the cacophony occasioned by a swell of economic refugees surging north of the border.

From the March 7-13, 2007, issue

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