Mexico produced 3.1 mn bpd of crude oil in 2007, of which 1.4 mn bpd, or 45.5%, came from one field-complex, Cantarell. Cantarell, however, is in decline. Output appears to have peaked aound 2.2 mn bpd in 2003, since when it has fallen sharply.

Cantarell began production in 1979. Concerns were raised about production as early as the 1990s when, late in the decade, a sharp decline in reservoir pressure was observed. A programme of enhanced oil recovery (EOR) using nitrogen injection was instituted, which helped to revive output from the field, but this proved only temporary. By 2004, it was clear that Cantarell was in long term decline.

The field itself lies about 55 miles offshore in the Bay of Campeche, in the Gulf of Mexico. It was estimated to have a massive 35 bn bbl of oil originally in place, making it one of the largest fields in the world. Since then, reserve estimates have been revised considerably downwards.

The decline in Cantarell’s output is being partly offset by production from another field in the Bay of Campeche, Ku-Maloob-Zaap (KMZ); but KMZ’s output is only 650,000 bpd and is close to its peak.

Mexico is currently a net exporter of oil. Its gross exports amounted to 1.8in 2007, of which 1.7were in the form of crude oil. Of these 1.7, just over 1.4went to the US-along with 124,000 bpd of products - making Mexico the second-largest supplier of crude oil and products to the US last year.

In terms of crude oil only, Mexico is the third-largest foreign supplier to the US, with a total of 1.41 mn bpd in 2007, accounting for 14.1% of the total. The US regards Mexico as a particularly important supplier given its location outside the Persian Gulf and the fact that Mexico is not a member of OPEC. For some years, the US has sought to increase the volume of crude it imports from within its own hemisphere as part of its policy of improving national energy security.

In recent years, Mexican imports have become all the more important as a result of events in another western hemisphere producer, Venezuela, where the government is taking an increasingly anti-US line in its domestic and foreign policy. The government of President Hugo Chavez has declared its intention both to reduce the proportion of Venezuela’s oil exports that go to the US and to reduce the role of American oil companies inside Venezuela.

Chavez wants to divert some of the country’s oil exports to other parts of Latin America and to China. At the same time, he is seeking to nationalize heavy oil-producing joint-ventures in Venezuela involving US companies Chevron, ConocoPhillips and ExxonMobil. Mexico is one of only five countries capable of supplying over 1 mn bpd of crude oil to the US market, which must now import more than 10 mn bpd. Two of the other five are Venezuela and Nigeria where, in the latter case, there is considerable unrest affecting oil production (see ‘The Month in Brief’). The remaining two countries are Canada and Saudi Arabia.

The problem for the US is not simply that Mexico’s exports of crude oil may decline in future, but that they may decline quite soon and over a relatively short period. In a report produced in late 2007, Mexico’s Energy Ministry said that exports of crude oil could decline by as much as 85% by 2016, to under 300,000 bpd.

Mexico’s problems are compounded by declining reserves, falling production and a rise in domestic demand. Given the government’s long-standing commitment to a state-owned oil industry, the onus lies on the national oil company, Pemex, to remedy the situation. Pemex, though, appears to lack the resources to reverse the fortunes of the oil industry.

A shortage of funds has affected the search for new reserves to replace those being depleted by existing production. At first sight, Mexico’s reserves appear to be in a reasonably healthy state, at 12.35 bn bbl in 2007, making them sufficient for 26 years’ production at last year’s levels. This nevertheless marks a steep decline since the beginning of 1995, when they were estimated by BP’s Statistical Review of World Energy at 50.8 bn bbl: equivalent to almost 45 years’ production at Mexico’s then production level of 3.3 mn bpd. By the start of 2001, the same source estimated Mexico’s proven reserves at 28.3 mn bbl, giving a reserves:production ratio of nearly 24:1, when the country’s output was running at 3.5 mn bpd.

Part of the decline represents a restating of reserves in line with international reporting practices such as the filing guidelines adopted by the US Securities and Exchange Commission (SEC). Most, though, appears to be the result of Pemex’s inability to replace its reserve levels.

The company has generally had a poor record in exploration in recent years. It has failed to find sufficient number of fields to replace Cantarell and when it has found fields, it has failed to bring some of them on-stream quickly enough to replace its rapidly declining principal field.

It is true that the KMZ field-complex is a substantial field, producing as it does some 650,000 bpd; but KMZ is close to its long term production peak. Within two or three years it is likely to be at its maximum level of 800,000 bpd. Mexico’s Energy Ministry believes that this peak could be short-lived and that KMZ could begin its long term decline as early as 2011 or 2012.

A number of other fields have been identified as prospective, but nearly all are much smaller than KMZ, let alone Cantarell. There are plans to stabilize Cantarell’s production at or close to 1.3 mn bpd by means of further EOR, but any arresting of the decline is likely to prove temporary given more than a decade of pressure problems in the reservoir.