The view from above an underwater oil field in the Gulf of Mexico. (Photo: Webshots)
Mexico's oil industry is, in large part, a direct reflection of the country's economic well-being. As those who have been following global oil output are aware, production in Mexico has started to wane, and just might decline very rapidly. Since the Mexican federal budget depends very heavily on oil revenues, the country may be faced with some tough times ahead, leading to increased pressures among its citizens to migrate north into the U.S.
The giant Cantarell oil field lies deep under the water of the Gulf of Mexico. But in financial terms it stands astride the entire nation of Mexico. Since its discovery in 1976, it has been the mainstay of the country's oil production, accounting for nearly 60 percent of total production of over 3.3 million barrels of oil per day.
Sixty percent is also the cut that the Mexican government takes from the revenues of the state oil company, Petróleos Mexicanos (Pemex), in taxes every year. Suffice it to say that the government relies heavily on oil production to support the economy.
Making for a potentially precarious situation, Mexico's energy sector lacks diversification and is thus very vulnerable to sudden fluctuations in production. Some industry experts have predicted that the country could run out of oil in the next 11 years, if discoveries do not materialize.
Increasingly, news reports are filtering out that the largest, most indispensable oil field might have already seen its best days. According to Venezuela's Daily Journal (March 30): "Pemex is now seeking to replace output at Cantarell, which contained 35 billion barrels of oil when discovered in 1976. The field peaked in production at more than 2 million barrels a day in 2005 and will decline by 30 percent to 1.43 million barrels per day by the end of 2008, Pemex has forecast. Only Saudi Arabia's Ghawar field is larger. … 'It's hard to compensate for a super giant field with something much less than a super giant field,' said David Shields, an independent energy industry analyst in Mexico City."
From a source inside Pemex, Vive Le Canada (March 26) reported: "According to Carlos Morales, production manager for Mexico's state owned oil company, Cantarell's projected output will be 6 percent lower this year at 1.9 million barrels per day and down to 1.43 million barrels by 2008, the level of production in 2000. A leaked internal memo from inside Pemex said water and gas were seeping into the massive offshore oil field."
This has extremely dire implications for the country's economy, as the Mexican Peso is backed by oil. When oil revenues go up, so does the peso. When they go down, so does the peso. Now, as Mexico joins the growing list of countries in oil production decline, revenues are projected to drop, not because of a low oil price, but because of lower and lower production figures.
Recent developments, though, could portend a reversal of the projected decline. As reported by London's BBC (March 15): "Mexican President Vicente Fox has announced the discovery of a new deep-water oil field, which is believed to contain 10 billion barrels of crude. The field is in the Gulf of Mexico, and Mexico says it could be bigger than its largest oil field, Cantarell. Production there is said to have declined sharply in recent years. Mr. Fox made the announcement as figures showed the country's total oil reserves had fallen 2 percent between 2003 and 2005. … With at least 3.4 million barrels per day, Mexico is Latin America's largest crude producer ahead of Venezuela and Brazil, according to the International Energy Agency. The oil industry provides one third of the Mexican state income. More than half the crude extracted is exported, mainly to the United States."
Some oil industry experts warned that oil production at the new site could take up to a decade to be realized due to technical obstacles alone, not to mention the current legal and financial restrictions that Pemex faces in developing this and other fields. So, while the discovery of the new oil reserves is good news for Mexico, it will not affect global markets in the short or medium term.
The Daily Journal (March 30) elaborated on some of the hurdles to be overcome: "The long-term solution to replace Cantarell will require an investment of $17 billion a year to tap deep-water deposits and an onshore field called Chicontepec, which now contains 40 percent of Pemex's proven, probable and possible oil reserves, according to Pemex Chief Executive Officer Luis Ramirez. Chicontepec has remained untapped since it was discovered in 1926 because the small pockets of oil tucked in fractured rock require drilling technology that Pemex lacks. Pemex needs to spend $38 billion over 20 years in Chicontepec to drill 20,000 wells, more than during its nearly seven-decade history. … 'To tackle Chicontepec and deep water, we need to have a legal framework in which we can work with other companies in strategic alliances. To insist that Pemex alone can develop a project of this nature isn't realistic,' Ramirez said."
The decline in oil production hasn't seriously hurt the Mexican economy yet. In fact, the country is experiencing economic growth, as reported in London's Reuters (March 24): "Mexico's economy expanded 5.7 percent in January compared with a year ago, government data showed on Friday in the latest sign that growth in the country is picking up after a slump last year."
Mexico's El Universal Online (April 7) concurred, noting that: "The Finance Secretariat said it expects the government to end 2006 with a small budget surplus, thanks largely to higher-than-estimated oil income. The secretariat said it expects federal revenue to be 82.7 billion pesos (US$7.56 billion) higher than initially estimated, with 74.3 billion pesos (US$6.8 billion) coming from oil. Oil and related taxes account for more than one-third of federal revenue. The document submitted this week estimates 2007 economic growth of 3.6 percent."
Underscoring the importance of the proceeds garnered from the sale of oil, China's Xinhua (March 13) reported: "Mexico's oil sector produces 8 percent of the country's gross domestic product, and pays nearly 37 percent of the nation's taxes."
Given the country's obvious dependence on oil revenues, a projected sizeable drop in production is worrisome. Whether or not the new oil discoveries will ultimately offset the current decline remains to be seen.
Any significant shortfall in oil revenues, which leaves the government with less money to deal with domestic issues, will likely prompt more Mexicans to contemplate migrating north to the U.S.
As it stands, many Mexicans are far from satisfied with their current economic status and with President Vicente Fox. According to Canada's Globe and Mail (April 11): "Mexican voters may still think that Mr. Fox is a 'good guy' but they feel disappointed after the promises that he made in 2000…. Raquel Fernandez, a 19-year old student in the city of Apizaco, northeast of Mexico City, said that people expected a lot of Mr. Fox but in the end, '… instead of promoting progress, he did the opposite and we're worse off than we were before.'"
This sense of dissatisfaction has translated into a steadily increasing number of persons, especially children, crossing into the U.S. illegally. According to Cuba's Prensa Latina: "The number of Mexican minors who illegally cross the border with the United States continues to grow and doubled only in the first quarter of 2006. Numbers given by the Government Secretary's Office, mentioned by La Jornada daily, showed that 3,289 Mexicans from newborn babies to 17-year old youths were deported in that period. The daily said 1,566 children were returned to the authorities of the National Migration Center in the same period of last year."
Given the current contentious debate in the U.S. regarding illegal immigration, the prospects of a dramatic increase in the number of Mexicans crossing the border might not be welcomed.
Stephen Lendman, in Mexico's online Indymedia Chiapas (April 12), commented on the change in the collective U.S. attitude towards immigrants: "'Give me your tired, your poor, Your huddled masses yearning to breathe free, The wretched refuse of your teeming shore.' Once that was true, but no longer. Emma Lazarus' beautiful and memorable words we've all heard many times and know well are fading into memory. If we're honest, they should be removed from 'Lady Liberty' and be replaced with something like: 'We'll take your Anglos, especially well-off ones, and the ones we choose with needed skills; you keep the rest, especially your poor, dark-skinned and desperate. We needed 'em once for our homegrown sweatshops. No longer. We've got plenty all around the world. It now looks like we'll make an exception though for the menial or toughest low pay, no benefits, no security jobs no one else wants. We're still debating it and will let you know.'"
In Canada's Toronto Sun (April 3), columnist Hartley Steward also noted that the Statue of Liberty's inviting inscription is no longer viewed in the same light that it once was: "You understand, this is no simple welcome-to-America greeting. This is an achingly beautiful articulation of one of the most noble notions of national purpose ever in history. What an inspiration it must have been to those new immigrants. At a time when most of the xenophobic world guarded its borders jealously, fearing anything unfamiliar or foreign, America's founding fathers conceived their new nation as a home for the weary and dispossessed. At a time when democracy could still be considered a new idea and freedom mostly a dream, America had freedom beyond imagining, hope and dignity seldom found anywhere.
"That legacy is one reason the U.S. now struggles with the Mexican immigration problem. It's why the nation is split so divisively over the issue. It's hard to imagine in this land conceived partly as a haven for the world's poor, the suggestion that a giant wall be built along the common border of the two countries. One staffed by hundreds of armed guards, its purpose being to keep Mexicans seeking a better life out. How much more at odds with America's early policy of open arms could this wall be?"
Bangladesh's online Financial Express.bd (April 9) weighed in on the immigration controversy: "For many reasons — pressures on social services, global terrorism, fears that the culture of states bordering Mexico has become excessively Hispanic, a growing consensus that immigration depresses the wages of the poorest of the native-born — the price of easy-come, easy-go immigration has risen higher than Americans are willing to pay. Now that Congress is trying to clarify U.S. immigration rules, a clean, logical solution may be beyond its grasp. A large group of voters feels betrayed. A poll recently released by the Pew Research Center found the majority of Americans (53 percent) think all 11 million illegals should be 'required to go home.'"
Given the current consensus on Mexican immigration, the prospect of an even greater influx due to economic hardship caused by shortfalls in oil production might spawn a national controversy that dwarfs the current one.