I have written previously about Mexico's Cantarell oil field. In yesterday's Wall Street Journal, David Luhnow wrote an excellent article DYING GIANT: Mexico Tries to Save A Big, Fading Oil Field (subscription required) about the decline of the Cantarell oil field and its importance to the Mexican economy. Moreover, Luhnow indicated that Cantarell might be typical of many of the elephant fields.
As an aside, you can find earlier references on my blog to Cantarell oil field by hitting the Cantarell tag below this article. For those reading by RSS, you will need to visit my blog.
It's widely believed that the world's biggest oil fields have already been found. In the decades leading up to the 1970s, the world discovered eight big fields that produced between 500,000 to one million barrels a day, according to Matthew Simmons, a veteran oil industry banker. During the 1970s and 1980s, only two were found. Since then, only one -- the Kashagan field in Kazakhstan -- has the potential to easily top the 500,000 barrel-a-day mark.
Two decades ago, about a dozen fields produced more than a million barrels a day. Now there are only four, one of which is Cantarell. The future of two others, discovered more than 50 years ago, remains in question. Some analysts speculate Saudi Arabia's Ghawar, the biggest field by far, could begin a gradual decline within a decade or so. Another, Kuwait's Burgan, is showing signs of maturity. In November of 2005, Kuwait Oil Co. lowered its estimate of the field's sustainable production level to 1.7 million barrels a day from 1.9 million a day.
Replacing big gushers is difficult. Industrialized countries, which tapped out their big fields years earlier, haven't been able to maintain output despite finding large numbers of smaller fields and investing heavily in technology. Alaska production, hurt by declines at the giant Prudhoe Bay field, dropped from 2 million barrels a day in 1988 to a current rate of about 900,000 a day.
As those who read my blog, you know that I am bullish on commodities in general and in particular on gold and silver as well as oil and gas. If the bulls on energy are correct, then this article serves an excellent warning of higher prices to come.
Furthermore, I am curious as to how Mexico grapples with the decline of Cantarell. Will it open its oil industry to foreigners? Or will it make cutbacks in other areas of its economy to compensate for decline in production? Mexico faces some difficult decisions.
I highly recommend reading and keeping the WSJ article. It provides an excellent snapshot of the difficulties facing the oil companies as they search for new reserves. And it highlights the political challenges of those countries with large fields in decline.
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