Is the U.S.'s Third Largest Oil Exporter Teetering on the Edge?

Mexico's oil production is plunging. "Pemex extracted 772,000 barrels a day from Cantarell [in January 2009], the world’s third-largest [oil] field, a decline of 38 percent from a year earlier" (yikes!), according to the Bloomberg article, whose link I found at this blog.

Why should U.S. citizens care (the plunging rule of law on the U.S. border with Mexico is probably a more heightened near-term concern)?

Because Mexico is the United State's third largest exporter, behind Canada and Saudi Arabia. In December 2008, the U.S. imported 1.126 million barrels per day from Mexico, nearly 10 percent of all of its imported crude oil, according to the EIA.

To put that number into perspective, even Iraq exported only about half that oil amount to the U.S. during the same period.

Fueling cars and trucks, the transportation of much of our food, for instance, is about 97 percent dependent on crude oil.

The U.S. is dangerously dependent on foreign countries for this crucial energy source; two-thirds of all of our oil comes from other countries.

The top five exporters (including Venezuela and Nigeria, along with the previously mentioned three) dominate U.S. imports. "The top five exporting countries accounted for 59 percent of United States crude oil imports in December while the top ten sources accounted for approximately 87 percent of all U.S. crude oil imports," according to the Energy Information Agency. It's not like we can just grab more oil from another source who is willing to make up for Mexico's probable and eventual exit from the scene as a big U.S. exporter.

Mexico's need for its own dwindling oil supply will probably exceed its need for the revenue it can raise by selling its oil, particularly at the present low price per barrel of about $42. Experts call this condition "peak exports" (when important supplying countries are forced to consume their own crude oil rather than sell it). Despite the fact that the world is currently awash in relatively cheap oil, this is a problem the U.S. is likely to confront in the months and years ahead.

Gas Prices Creep Up: Oil Supply Crisis in the Offing?

Gasoline prices have gone up quite a bit in the last few weeks here in the Boston area, from about $1.69 per gallon to $1.89 per gallon. What gives?

What will become of us if we are hit with an energy crisis on top of this horrendous, Depression level economic crisis?

First of all, gas is still very cheap for the beleaguered U.S. consumer compared with Europe. Gas is more than three times more costly there. But clouds are gathering on the horizon.

The New York Times reported back in December 2008 that "dozens of major oil and gas projects have been suspended or canceled ... as companies scramble to adjust to the collapse in energy markets [meaning the price of crude oil]."

This means that all those oil derricks that were sprouting up all over places like Texas, Pennsylvania, and North Dakota have ceased operations, not to mention big exploration and drilling projects throughout the world. What looks like a good deal at $147 per barrel suddenly does not make any sense at less than $40 per barrel.

As a result, it is just a matter of time before supply constraints send the price of the Western world's precious oil upwards again.

That is just what the realing economy needs, right? High energy costs. Actually, yes. This is a golden opportunity for the U.S. and other countries, when oil demand is historically low, to begin weaning themselves from this heroin-like addiction, via conservation mainly (smaller cars, better trains, telecommuting, eating locally grown food, and the like), before the unfortunate implications of a loss in oil supply become the second really bad crisis to come true.

The latest cheap oil era may be fleeting

Gas was $1.67 per gallon at my favorite station down the road. Crude oil has plummeted from its Summer high of about $145 per barrel (pb) to less than $40 pb. Yippee! Let's get the Hummers down off the blocks and hit the road! The era of cheap oil is back! (Writer's disclaimer: the last few statements are facetious. I drive a hybrid.)

Hold your horses. The New York Times reported on December 16 that the sudden drop in oil prices, the yo-yo effect that experts call "volatility," has abruptly put the kibosh on many oil production projects throughout the world. From off the coast of Africa to the Dakota's countryside, an oil boom that had commenced apace last Summer is grinding to a halt.

The result is likely to be a tight oil supply, once again, that will inevitably increase oil and gas prices precipitously. Ironically, some of the sting has been taken out of alternative energy projects, even though new energy sources to replace oil will be critical, now that the oil price has dropped again.

The International Energy Agency, in a study of hundreds of the world's largest and oldest oil fields, has also raised peak-oil alarm bells in its World Energy Report about the long-term prospects for oil supplies.

"Even if oil demand was to remain flat to 2030, 45 mb/d of gross capacity – roughly four times the current capacity of Saudi Arabia – would need to be built by 2030 just to offset the effect of oil-field decline," the above link quotes IEA Executive Director Nubuo Tanaka.

Four new Saudi Arabia's, in other words, would have to be found simply to compensate for the on-going decline of the world's largest fields. Wow.

The latest drop in gas prices appears to be a tantalizing mirage, or relief, for drivers, but not much more meaningful than that. Therefore, we have to keep our eye on the ball: plug-in hybrids, electrified transportation, and finding ways to conserve oil use.

Have I really conserved?

By displaying how much gasoline I used on the year in the left column of this page, I'm helping myself reduce gas use by measuring my consumption, whereas also crowing about my accomplishment. I'd say I've reduced my gasoline consumption by about 175 or more gallons per year, compared with previous years.

But is 225 gallons of consumed gasoline in a year really a lofty goal? Not really. Let's do the math.

A lot of people in China want to realize the American dream and drive like Americans.

According to Lester Brown's book Plan B 3.0, if China reached the car-ownership rate of Americans (three cars for every four people) by 2030 China will have more cars than exist on earth right now (heading for 2009).

And to provide the space on which to drive them, they would have to pave over a lot of the acreage that they require to grow rice and feed their teeming throngs.

Now to my supposed reduced consumption. 1.1 billion cars is the projected number of cars owned in China given an average eight-percent economic growth rate from now until 2030. What if all of these cars driven by people in China used as much gas as I did in 2008?

1.1 billion X 225 divided by 365 equals 678,082,191 gallons of gas used per day. Since one barrel of oil produces about 20 gallons of gas (plus other products like heating oil), then China's 2030 consumption equates to about 33,904,109 barrels of oil per day.

This number exceeds present U.S. consumption by more than 10 million barrels per day, and would probably represent more than one-third of all the daily available oil in the world.

Therefore, not even my reduced consumption is impressive or sustainable, and I haven't even mentioned the associated carbon emissions, which is probably the most important aspect of reducing gasoline consumption.