The Biggest Threat to the U.S. Oil Supply

It’s our struggling neighbor to the south.

For a few years now, we energy-focused Fools have been casting a concerned eye at Mexico, and more specifically Cantarell, the cornerstone of Mexican oil production.

My colleague David Lee Smith detailed the matter of Cantarell’s dangerous decline curve in a seminal piece back in 2007. At that time, production had slipped by 20% in a little more than one year, from 2 million to 1.6 million barrels per day. The declines have only gotten more dramatic.

Last summer, Cantarell dropped below the 1 million barrels a day. This July, output registered a 40% year-on-year decline, to a little more than half a million barrels per day. That’s a 72% decline from peak production rates in 2005.

State oil monopoly Pemex’s 2009 forecast of 756,000 barrels per day at Cantarell now looks not only optimistic but downright naive. The company is clearly aware of the staggering challenge it faces, and it has thrown some cash at service companies such as Schlumberger (NYSE: SLB) and Halliburton (NYSE: HAL) to crank out crude at the onshore Chicontepec field. Pemex just doesn’t seem to be tackling this situation with anything like the alacrity required.

MSNBC