Mexican Oil Crisis
Peak Oil Realities
It happens almost every day.
For some unknown reason, tow trucks seem to have a field day outside my office.
Countless times I've seen people scramble outside, only to watch as their car is pulled down the street.
Believe me, the price of getting your vehicle back is steep enough to make you regret being towed. I have a feeling I'm not the only one of us that has experienced this nightmare.
Thankfully, I've learned my lesson when comes to Baltimore's tow truck racket; and having been a victim several times before, I can't help but feel sympathy for the driver.
So this morning, I wasn't surprised to see the tow truck driver give me a toothless, knowing grin as he passed. His smirk was enough for me to go back and double-check that my parking pass was clearly visible on my dashboard.
The moment I rounded the corner to the lot, I saw the reason why he was so smug.
Resting comfortably — sans parking pass — was a Hummer. The massive vehicle was parked right next to my beat-up Cavalier. In the blink of an eye, the guy was furiously at work.
“Not gonna give them a chance, huh?” I said.
He looked at me, this time with a hint of contempt.
I continued, “Shame to tow a brand-new truck like this.”
His quizzical face gave me the opening I needed.
“Don't worry, it's not like they will be driving it for much longer.”
He gave me another hard look, then stopped what he was doing to ask me what I was talking about.
Facing peak oil realities
“Do you think someone was actually driving this beast when gas was over five bucks? Filling up is so cheap now, people are starting to forget again,” I said.
He conceded the point.
Like everyone else, he hasn't thought much beyond today's price tag on the pump.
Unfortunately for Hummers around the world, oil isn't $30 per gallon anymore...
In fact prices have been stuck between $70 and $85 per barrel for more than a year.
Sure, there have been a few exceptions; oil briefly climbed above $93 per barrel last May.
As demand slowly makes its comeback, the possibility of $100/bbl oil doesn't seem so far-fetched. It won't happen this month or next. But sooner or later, triple-digit oil prices are inevitable — and much of that is thanks to peak oil.
I know that our year-over-year production increased by 411,000 barrels per day 2009. (You can see those figures with a few simple mouse clicks.)
And yes, I understand that eight states boosted their oil production last year... But dig just a little deeper and you'll find that most of the increase came from only a few areas.
However, in order to continue that streak, oil prices will have to rise. There's no way around it. The oil we're pumping out now is much more expensive.
I'd hate to burst anyone's bubble, but it's not as easy as shooting the ground with your gun, Jed Clampett-style.
And it's getting more difficult to stifle my laughter when people tell me the world will be producing 130 million barrels of oil per day in 2030.
Mexico's fall from grace
“But if we can't get enough from ourselves, isn't that when other countries will take advantage of us with their own supply?" the question from the tow truck driver interrupted me.
I should have expected him to say that... He's no stranger to taking advantage of others' misfortune.
“Not exactly. The picture doesn't get much better for them, either.”
Six years after U.S. oil peaked in 1970, it wasn't some famous geologist or oil tycoon that made a massive discovery... It was a simple fisherman.
When seeping oil began messing with his fishing nets, the nuisance was investigated by PEMEX, Mexico's national oil company.
You know the rest of the story. Just five years after the discovery, the Cantarell oil field was pumping out more than a million barrels per day.
By 2003, production had grown to 2.1 million barrels per day. Of course, Mexico's oil exports to the U.S. reached a new record that year, too — to the tune of 1.6 million barrels per day.
The next year, however, PEMEX announced that Cantrell production would experience a sharp decline of 14% per year from 2006 and beyond.
The reality was much worse. In the summer of 2008 — when oil prices reached a new high $144 per barrel — production from the Cantarell dropped sharply to 973,668 barrels per day, a 36% decline.
Since then, things have gotten worse for Mexico.
Remember, we're talking about a government that derives 40% of its budget from oil revenue.
As you can expect, peak oil has taken its toll on our Mexican oil imports:
How bad is the situation?
PEMEX recently announced the company will be importing crude oil for the first time in decades.
Think about that for a minute.
The problem is that Mexico's refineries — the last of which was built thirty years ago — can only handle light crude, not the heavy stuff they are starting to produce.
I've said this to my readers many times before, and I'm still as adamant as ever: Mexico will become a net oil importer within the next 7 to 10 years.
When that happens, I can only hope the Mexican government — as corrupt as it is — has its act together.
Of course, it also means the U.S. will have to find an extra 1.2 million barrels per day from somewhere else...
Although the amount of imports that PEMEX is considering right now is only 3% of their total production, this is just the beginning.
Forget the short-term fears
Energy has, and always will be (in my mind, at least) a long-term play.
Don't get me wrong, you can jump in and out of an energy stock on a daily basis, and still walk away with a small fortune in your pocket.
Granted, I don't recommend you do so blindly... or else be prepared to learn a hard lesson.
Make no mistake, the opportunity is there. I've watched as Christian DeHaemer's readers banked 727% gains on a single oil stock without batting an eye.
But too many people are grossly underestimating the value of a solid energy stock in the long run.
On Monday, I'm going to show you two of those plays in particular.
The best part? The way things are shaping up, this creates a win-win situation for investors.
The price of delay
“Sounds like Mexico is in for some trouble,” our tow truck driver grumbled. His scowl was back, probably after realizing how much time he'd wasted talking to me in the lot.
“Maybe... But at least you can prepare for it,” I replied, more to myself than to him. He'd already turned his back to finish securing the Hummer.
With one quick glance at the parking pass hanging from my mirror, I started to make my way back to the office. As soon as I turned the corner, I could hear a woman's voice screaming to leave her car alone.
So much for waiting.
Until next time,
Energy and Capital
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