Pemex Ramps Up Cantarell Gas Output to Help Oil Production

MEXICO CITY Dec 04, 2007 (Dow Jones Newswires)

Mexico's giant Cantarell oil field has been a sore spot for state-run oil giant Petroleos Mexicanos ever since output began to fall in 2004.

Mexican oil production is down 13% since its peak in late 2003, primarily due to Cantarell's steep decline. This rattled politicians and oil officials in a country historically dependent on crude exports for state spending.

But Cantarell has recently had glowing success in natural gas, which helped mitigate declining oil production. Gas output at the elephant field is up 40% since January, contributing to an 11% rise in Mexico's total gas production during the first 10 months of this year.

The gas, however, isn't primarily for sale.

"Most of (the gas) is re-injected," said Pemex exploration and production chief Carlos Morales. Pumping the gas back into other parts of Cantarell increases pressure within the reservoir, helping to improve oil extraction rates.

Last year was particularly bad for Cantarell, with oil output tumbling by 500,000 barrels, or 25%, to 1.5 million barrels a day. Production has leveled off this year at around that level, except for August and October when bad weather forced Pemex to shut in production at part of the complex.

The slower rate of declining oil output coincides with rising gas production. Morales said the company is tapping gas in a 50-meter-deep layer of the reservoir known as the transition zone, located at the border between lighter natural gas molecules and the heavier crude oil deeper in the field.

Two industry experts consulted by Dow Jones Newswires, who asked not to be named, said Pemex could be drying out the reservoir at an accelerated pace in an attempt to stabilize output levels. Increasing gas injection will allow Pemex to produce at higher volumes, but will shorten the life of the oil field.

Despite the recent success with re-injecting gas, longer-term prospects for Cantarell remain dim. According to company numbers provided in late August, Cantarell's output is expected to slide by a third to 943,000 barrels a day by 2010.

Pemex hopes to compensate by increasing production at more expensive oil fields, such as Chicontepec, that it neglected during Cantarell's boom years. The Felipe Calderon administration hopes to maintain oil output at around 3.1 million barrels a day for the next five years, and will have to tap new fields to do so, even if Cantarell's steep decline rates start to ease.

In October, Cantarell's natural gas output was at 1 billion cubic feet a day, nearly a sixth of the country's total gas production.

Overall Mexican natural gas output has risen more than 40% since 2003 to a record of 6.3 billion cubic feet in October, but is expected to peak at around 7 billion in 2011.

Much of that does indeed make it to market, and the rise in production has already eased Pemex's import bill this year. In the third quarter of 2007, natural gas imports averaged 423 million cubic feet a day, 14.5% less than those recorded during the same period in 2006, due primarily to higher natural gas production, said the company in a recent earnings report.

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