Another Day, Another Oil Field in Decline
Saturday, May 27, 2006
By Luke Burgess
Despite what you might have heard from the Beatles, it's not 'getting better all the time.' In fact, in the oil world, it's only getting worse.
As we quickly advance towards the end of cheap oil the world is faced with many increasingly complex issues.
Conflicts in Iran, Iraq, Nigeria and Venezuela, booming economies is China and India, as well as globalization and hurricanes have all taken their toll on the global oil market.
Now a new monster has come from under the bed: super-fast oil depletion.
This story begins roughly 65 million years ago. Scientist believe that around this time a giant meteor, 10 kilometers wide and traveling around 60,000 miles per hour smashed into the sea near the Yucatan Peninsula, taking out almost 75% of the species living on earth and creating what we know today as the Gulf of Mexico.
After the impact there wasn't much left behind. Except a gaping hole about 100 miles in diameter.
The massive crater was quickly filled in by the gushing waters of the returning sea and rubble from landslides along the sides of the crater.
Somewhere between this earth shattering event 65 million years ago and 1976, parts of the underwater crater filled up with about 35 billion barrels of oil, making it one of the world's greatest oil fields.
Today we call it the Cantarell oil field.
Within a few short years of its discovery in 1976, Cantarell was producing over a million barrels a day from only 40 wells.
It was one of the last super giant discoveries on earth.
Fast forward to the 90s.
Suddenly, the natural gas pressure driving the oil out from below the seafloor started to fizzle out and production started dropping.
So, in response to the drop in production the owner and operator of the field, Petróleos Mexicanos (Pemex) built a large nitrogen separation plant near the field and started injecting high-pressure nitrogen into Cantarell each day.
The program worked like a dream.
A few years after the program was initiated, Cantarell was yielding up to 2.1 million barrels per day, making it the second highest production oil field in the world. Only the great Ghawar field in Saudi Arabia produced more.
But now, the party is over.
Pemex recently released a statement that said the company expects production at its Cantarell oil field to begin declining this year. The company had initially forecast that the field wouldn't enter decline for several more years.
Pemex said that they expect last year's results to show a 5% decline in production. Not good.
But the Cantarell story only gets worse from there.
According a study published by Pemex, Cantarell's production could drop from 2 million barrels per day to just 875 thousand barrels a day by the end of next year. Then production could drop again to merely 520 thousand barrels a day by the end of 2008.
It should go without saying that the loss of nearly 1.5 million barrels a day of production capacity within three years is devastating, bordering on catastrophic.
And unlike political stoppages from exporters such as Iran or Nigeria, depletion simply can't be turned around.
As the ninth largest integrated major oil company in the world, and the third-largest producer of crude, Pemex is critical to the global oil market.
The company provides 16% of the imports to the US, behind Canada and jockeying with Saudi Arabia for second or third place.
The company said that it plans to invest as much as $11.5 billion this year to boost production in other fields, including exploration of deep-water deposits for the first time, to make up for the Cantarell decline.
However, the smaller fields that Pemex is planning on tapping will most likely not be enough to make up for the output reduction in Cantarell.
Especially considering that there have been no giant oil field discoveries in the past 30 years. None.
And this at a time when exploration and drilling technology has taken a quantum leap forward.
At the same time, Saudi Arabia's giant Ghawar field, by far the largest oil field on earth, is also getting long in the tooth. The field was discovered in 1949, over 55 years ago.
More recently, the Saudis have had to inject massive amounts of water to keep the reservoir pressure up. And as a result, there are reports of a water cut nearing 50% at Ghawar.
If these reports are true, then we're certainly staring at the peak of production, not just regionally, but worldwide.
In the meantime, the sun is setting on Cantarell, one of the world's biggest oil fields.
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A senior editor for the free daily advisory, Energy and Capital, Mr. Burgess has brought scores of winning investments to his readers.
For more information on Energy and Capital, please visit: wealthdailymail.com
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