Latin American oil: past and future

2005 was a bumper year for Latin American oil production. According to BP’s Statistical Review of World Energy, in 2005 oil production reached 10.7 million barrels per day, a new record. This number, however, betrays a troubling fact: Production of conventional oil peaked in 1998 and any future production increases will have to come from either the Venezuelan tarsands or the deepwaters off Brazil and Mexico. This according to the latest report of the Association for the Study of Peak Oil and Gas (ASPO). Conventional oil excludes bitumen, extra-heavy oil, heavy oil, deepwater oil, polar oil, and liquids from gas plants.

BP’s information does not discriminate between different types of oil. This is significant because while conventional, or easy-to-get, oil can be gotten out of already tapped deposits, the other kinds require new investment and have higher costs of extraction. The biggest chunk of production in 2005 came from Mexico (3.7 million barrels), followed by Venezuela (3 million barrels) and then Brazil (1.7 million barrels).

Almost 40 percent of Latin American oil production, almost 4 million barrels per day, are currently exported out of the region, mostly to North America. The exported share varies by country. Mexico for example exports more than half of its production, while Ecuador exports about 73 percent of what it produces.

Even assuming regional consumption remains flat (not a far-fetched scenario if the coming global recession hits the region hard), the region as a whole will be faced with the stark choice of exporting and reducing their internal consumption or, alternatively, reducing exports. There will be no surplus left. The timing, of course, shall vary according to each country’s condition.

The longer term forecast is of dwindling production. ASPO’s numbers say that since 1998, the peak year, production has declined at a rate of 3.6% a year, which would reduce production to about 4 million barrels per day by 2020 and 3 million by 2030. By way of comparison, the United States alone consumes more than 20 million barrels per day, according to BP.