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If Mexico is the next Brazil in oil production, brace for disappointment

If Mexico is the next Brazil in oil production, brace for disappointment.

by Kurt Cobb, originally published by Resource Insights  | DEC 22, 2013

Recent reforms that would open oil exploration and development in Mexico to major oil companies for the first time in decades has the media all atwitter about the prospects of a reversal in declining Mexican oil output and a possible doubling of production. The reforms have brought out comparisons with Brazil which has a similar arrangement in which the country’s state-owned oil company works with major international oil giants to develop Brazil’s petroleum resources. Adding to the frothy atmosphere, former Brazilian President Luiz Inacio Lula da Silvaproposed a partnership between Mexico and Brazil to develop oil resources in both countries.

Mexico regional map http://commons.wikimedia.org/wiki/File:Mexico_regional_map.pngIn a world with daily average oil prices hovering near record levels, such news might be welcome if only we could actually count on the accompanying optimistic production forecasts. But, it’s instructive to look at what actually happened in Brazil since the time its potential as a major new oil producer was touted several years ago.

Brazil had discovered large oil deposits in ultradeep (30,000 feet down) reservoirs far offshore. In 2009, Petroleo Brasileiro SA (Petrobras), Brazil’s state-owned oil company, announced that it would invest approxmately $175 billion in oil exploration over several years to boost Brazilian liquid fuel production from 2.4 million barrels per day (mbpd) in 2008 of oil, biofuels and other liquids to 4.6 mbpd in 2015, a move that would make the country a major oil exporter.

Let’s see what kind of progress Brazil has made so far. In 2012 the country produced 2.65 mbpd of liquid fuels, making hardly any progress toward the goal announced for 2015. (The figures for oil proper, that is crude oil plus lease condensate which is the definition of oil, were 1.81 mbpd in 2008 and 2.06 mbpd in 2012.) In fact, instead of contributing to the worldwide supply of exports, Brazil remains a net importer of oil according to the U.S. Energy Information Administration (EIA), and those imports grew from 36,470 barrels per day in 2011 to 155,040 barrels per day in 2012.

The large Brazilian oil company OGX Petróleo e Gas Participações SA filed for bankruptcy recently “after disappointing output from offshore OGX wells set off a crisis of investor confidence,” according to Reuters. It’s no surprise that state-owned Petrobras is also finding it far more difficult to exploit its deep sea oil resources than originally anticipated. Admittedly, there are other problems at Petrobras. It has become a tool of economic policy for keeping unemployment low, saddling it with investments that it might not otherwise have made as a private company. But that doesn’t change the fact that exploiting oil far offshore at extreme depths is difficult.

Mexico’s state-run oil monopoly, Petroleos Mexicanos (Pemex), has seen its production drop from 3.45 mbpd of crude oil proper in 2004 to just 2.59 mbpd in 2012 according the EIA. Reforms that will give international oil companies new access to Mexican oil fields are supposed to change that trend. It’s one thing to let private companies drill previously monopolized fields. It’s another to raise overall nationwide production significantly as a result. Just ask the Brazilians. The easy-to-get oil has already been harvested in Mexico and Brazil. The hard-to-get oil comes next, and well…it’s proving hard to get.

Will Mexico fare better than Brazil? Art Berman, a petroleum geologist and consultant who accurately forecast the bust for shale gas investors, offered this analysis in a recent email:

 I have worked in Mexico since the early 1990s inside Pemex. There is a reason that no significant discoveries have been made since the 1970s–no reservoirs.

 The Campeche Sound [in the Bay of Campeche] has reservoirs thanks to the biggest frack job ever, the Chicxulub meteor impact. The Golden Lane reef trend, discovered much earlier, has been fully explored with no new discoveries. Beyond that, almost nada.

 The Eagle Ford Shale play [in Texas] extends into Mexico and, so far, all tests have yielded [natural] gas. There is a potential oil play in theTampico area from the El Abra Shale that sourced the Golden Lane. The Chicontepec tight calcarenite play contains huge oil [resources] that no one has figured out how to exploit commercially as recently as in the last few years. The deep-water Gulf of Mexico has serious reservoir problems in Mexico.

 Add it all up and we are left with the same sense that there should be huge remaining undiscovered reserves in Mexico that an awful lot of smart foreign companies (Amoco, BP, Chevron, Exxon, Shell, etc.) have been unable to discover working closely [through service contracts] with Pemex since the 1980s.

 As far as the Citi [Citigroup Inc.] estimates go [projecting a doubling of Mexican production which is mentioned and linked above], mucho ruido, pocos nueces (much ado about nothing; literally, lots of noise, no nuts).

Jeffrey Brown, an independent petroleum geologist best known for his Export Land Model weighed in as well on Mexico’s oil future. Brown’s model, first released publicly in 2006, correctly forecast shrinking global net exports of oil in recent years. He believes that any effect of the Mexican reforms will be relatively small and delayed several years. He related his views in a recent email:

 Regarding their [Mexico’s] offshore potential, it’s going to take a long time to work out the agreements, drill some wells and put the wells on line. I wouldn’t expect to see any meaningful contributions from joint venture offshore projects until some time after 2020. Regarding onshore, [that] production could come on line sooner, but the agreements have to be made, and the per-well production rates are vastly lower than offshore. Also, I suspect that the production sharing agreements are going to be something more or less equivalent to a 50% royalty (or worse), versus much more favorable terms in Texas [which would make investment in Texas more attractive to major oil companies versus investment in Mexico].

Brown, who manages a joint venture exploration program based in Ft. Worth, also noted that “Mexico is on track to approach zero net oil exports in about six years (around 2019).” He continually reminds those making rosy predictions about oil exports for any exporting country that those countries tend to grow as oil revenues increase which means their thirst for oil also grows. That can leave less and less oil available over time for export. If the country’s production is in decline, as has been the case with Mexico, exports decrease much faster than production on a percentage basis if domestic consumption grows in the face of declining production–a sort of pincer movement on oil exports.

It’s possible that Mexico’s production may grow somewhat as a result of the country’s reforms. But, it is foolish to expect too much given what we’ve seen in Brazil to date. And, it is important to remember that production from currently producing Mexican wells is declining continuously making it necessary to drill a lot of wells just to maintain current production let alone increase it.

Anyone looking for oil exports or production from Mexico to reach their previous high marks would be wise to plan for a less than salutary result.

 

Germany Wants A German Internet To Keep The NSA Out | Zero Hedge

Germany Wants A German Internet To Keep The NSA Out | Zero Hedge. (source)

As the ‘diplomatic’ debacle continues to rage between the US and Europe (most loudly France and Germany) over the Obama administration’s ongoing eavesdropping on its allies’ cell phones, Reuters reports that (state-backed) Deutsche Telekom is calling for German comms companies to cooperate to shield local internet traffic from foreign intelligence services. “It is internationally without precedent that the internet traffic of a developed country bypasses the servers of another country,” notes one academic, warning that if more countries wall themselves off, it could lead to a troubling “Balkanisation” of the Internet, crippling the openness and efficiency that have made the web a source of economic growth. Despite Obama’s denials, the situation is not fading away, and Germany and France continue to demand a “no spying” agreement.

Via Reuters,

As a diplomatic row rages between the United States and Europe over spying accusations, state-backed Deutsche Telekom wants German communications companies to cooperate to shield local internet traffic from foreign intelligence services.

More fundamentally, the initiative runs counter to how the Internet works today – global traffic is passed from network to network under free or paid-for agreements with no thought for national borders.

If more countries wall themselves off, it could lead to a troubling “Balkanisation” of the Internet, crippling the openness and efficiency that have made the web a source of economic growth, said Dan Kaminsky, a U.S. security researcher.

Controls over internet traffic are more commonly seen in countries such as China and Iran where governments seek to limit the content their people can access by erecting firewalls and blocking Facebook and Twitter.

“It is internationally without precedent that the internet traffic of a developed country bypasses the servers of another country,” said Torsten Gerpott, a professor of business and telecoms at the University of Duisburg-Essen.

“The push of Deutsche Telekom is laudable, but it’s also a public relations move.”

Government snooping is a sensitive subject in Germany, which has among the strictest privacy laws in the world, since it dredges up memories of eavesdropping by the Stasi secret police in the former East Germany, where Merkel grew up.

The issue dominated discussions at a European summit on Thursday, prompting Merkel to demand that the U.S. strike a “no-spying” agreement with Berlin and Paris by the end of the year.

Brazil’s President Dilma Rousseff, angered by reports that the U.S. spied on her and other Brazilians, is pushing legislation that would force Google, Facebook and other internet companies to store locally gathered or user-generated data inside the country.

 

NSA Hacked Mexican Presidents’ Email For Years: Report

NSA Hacked Mexican Presidents’ Email For Years: Report. (source)

The National Security Agency hacked the email of former Mexican President Felipe Calderon, according to a report from Der Spiegel.

The report, which stems from documents leaked by Edward Snowden, alleges that a division of the NSA “successfully exploited a key mail server in the Mexican Presidencia domain within the Mexican Presidential network to gain first-ever access to President Felipe Calderon’s public email account.” Der Speigel also reports that the spying, which began in May 2010, also targeted other top officials in the Mexican government.

The report claims that some of the information retrieved in the surveillance programprovided economic benefits to the U.S.

For more on the bombshell allegations, head over to Der Spiegel.

The report comes weeks after news that the NSA had access to current Mexican President Pena Nieto’s emails, as well as Brazilian President Dilma Rousseff’s.

Rousseff blasted the U.S.’s controversial surveillance program at the U.N. last month.

“Meddling in such a manner in the lives and affairs of other countries is a breach of international law and, as such, it is an affront to the principles that should otherwise govern relations among countries, especially among friendly nations,” she said.

 

Canada Busted in Industrial Espionage Targeting Brazil | Washington’s Blog

Canada Busted in Industrial Espionage Targeting Brazil | Washington’s Blog. (FULL ARTICLE)

The “Five Eyes” Spy On Economic Rivals

It has long been clear that the NSA spying program is being used for industrial espionage, by spying onlarge foreign corporations, and the biggest financial payments systems such as VISA and Swift.  Indeed, in a slide leaked by Edward Snowden, “economic” was one of the main justifications for spying.

And it has long been known that the “Five Eyes” –  the United States, Canada, Britain, Australia, and New Zealand – share their spying information amongst themselves.

So it should not come as a total surprise that other members of the Five Eyes – such as Canada – are also engaged in industrial espionage.

Specifically, documents leaked by Edward Snowden show that Canadian spies targeted Brazil’s Mines and Energy Ministry.

Brazilian President Dilma Rousseff rightly called it industrial espionage, and Brazilian foreign minister Luiz Alberto Figueiredo expressed:

The government’s repudiation of this serious and unacceptable violation of national sovereignty and the rights of people and companies…

 

Harper ‘Very Concerned’ By Reports Of Canada Spying On Brazil

Harper ‘Very Concerned’ By Reports Of Canada Spying On Brazil. (FULL ARTICLE)

BALI, Indonesia – Prime Minister Stephen Harper says he’s “very concerned” about reports that Canada’s top-secret electronic spy agency is doing industrial espionage in Brazil.

Harper said Canadian officials are “reaching out very proactively” to their counterparts in Brazil.

Brazilian President Dilma Rousseff is accusing the Ottawa-based Communications Security Establishment Canada of mounting a sophisticated spy operation against her country’s ministry of mines and energy.

The claim is based on documents leaked to Brazilian media by Edward Snowden, a former contractor with the National Security Agency — the American counterpart of Canada’s CSE….

 

NSA spied on Brazilian, Mexican leaders, report says – World – CBC News

NSA spied on Brazilian, Mexican leaders, report says – World – CBC News.

 

Brazil unions stage nationwide protests – Americas – Al Jazeera English

Brazil unions stage nationwide protests – Americas – Al Jazeera English.

 

Brazil wants answers on US surveillance – Americas – Al Jazeera English

Brazil wants answers on US surveillance – Americas – Al Jazeera English.

Brazil shantytown dwellers join mass protests – Americas – Al Jazeera English

Brazil shantytown dwellers join mass protests – Americas – Al Jazeera English.

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