Brazil soon to pass Mexico and Venezuela in oil output

by Dave

In the exploration space, once again the power of incentives in action. Plus, Mexico is going down the latter side of Hubbert’s curve.

Brazil is self-sufficient in fuel.  All this oil is a nice bonus, since currently, half of Brazilian cars run on flex-fuel ethanol technology and in 10 years, 75% of light vehicles will. When the next major oil shock comes, you can move to Brazil and peacefully ride it out.

Brazil is poised to overtake longtime energy powerhouses Mexico and Venezuela as Latin America’s biggest oil producer, a result of both political flexibility and natural resources. Trends suggest Brazil could rise to the top of the heap by 2011, as its ultra-deep offshore fields start producing in the months ahead.

Meanwhile, Mexico and Venezuela have seen crude-oil output drop dramatically in recent years. Traditionally high oil production in those countries made state-owned oil companies complacent, said David Shields, an independent energy analyst in Mexico City. “Basically, the reason is that Brazil had a crisis to deal with in energy and Venezuela and Mexico never did,” said Mr. Shields.

Brazilian state-run energy giant Petroleo Brasileiro SA, or Petrobras, was forced to adapt to free-market pressures in the mid-1990s when former President Fernando Henrique Cardoso opened Brazil’s oil industry, a Petrobras monopoly, to private competition. The result was a wave of exploration, with production surging by about 50% since 2000. Petrobras, responsible for more than 95% of Brazil’s output, produced just over two million barrels a day in November.
Things are headed in the other direction in Mexico, which has struggled with declining output and little new development. Mexico’s crude oil output has dropped from a peak of 3.4 million barrels a day in 2004 to an average of 2.6 million barrels a day in the first 10 months of 2009. Despite moderate overhauls in 2008 designed to increase the scope of oil-services deals, [state-owned] Pemex has been unable to follow the lead of Petrobras and increase foreign cooperation — including entering the kind of deep-water, shared-risk contracts that have helped Brazilian production.

Pemex also has to fund more than a third of Mexico’s federal budget, limiting its own ability to invest in itself. Efforts to loosen the reins have been hampered by political gridlock.

The production decline in Venezuela, which holds enough reserves to put the country into the same league as Saudi Arabia, has been primarily self-inflicted. President Hugo Chávez has diverted billions of dollars of profits from state-run Petroleos de Venezuela SA, also known as PdVSA, to welfare programs, hurting the company’s ability to invest. That has led to Venezuela’s crude-oil output sliding more than 700,000 barrels a day over the past decade.

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