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Nigeria, Saudi Arabia, Venezuela and Mexico

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Energy Briefing April 11th

Nigeria, Saudi Arabia, Venezuela and Mexico all made the energy news on Thursday.

Mexican President Felipe Calderon said Mexico must move urgently to reverse declines in oil output and add to reserves. He proposed allowing foreign and private companies to refine, transport and produce crude. Currently foreign companies are not allowed to participate in the Mexican energy sector.

"We have to act now because we are running out of time and out of oil," Calderon said in a 13 minute televised speech. Mexico is in serious trouble with 42% of its budget coming from its oil exports. At current levels Mexican reserves will run dry in only nine years. If this is allowed to happen it would bankrupt Mexico and cause starving Mexicans to overrun the U.S. border. Pemex exports have declined by more than $10 billion over the last two years because of declining production.

Since state laws ban any outside ownership of Mexican oil the only solution is to contract with outsiders to explore and produce for a fee rather than a share of the oil.  Mexico estimates there are more than 30 billion barrels still undiscovered in the deep waters of the Gulf off the shores of Mexico. Pemex cannot drill in waters deeper than 3000 feet.

Saudi Arabian Oil Minister Ali al Naimi said on Thursday there were no enough buyers of oil to justify an increase in production despite the high prices. Speaking at an oil conference he asked, "Where are the buyers? If more buyers emerged we would sell at once. There are no buyers."

Saudi also said the much delayed Khursanyah field would come online this month and be producing 500,000 bpd by year end. Saudi will also add another 250,000 bpd from the Shaybah oil field expansion. Saudi is spending $90 billion to boost their capacity to 12 mbpd by 2010. They are the only OPEC supplier capable of any material boost in output.

Nigeria said 55,000 bpd of shut in production has been restored. That production had been shut down for the last 9 months due to problems in the region. There are still more than 1 million barrels shut in because of security issues, technical problems or insufficient funding to correct the problems. Nigeria currently has production capacity of 3.2 mbpd but is only producing 2.1 mbpd.

Venezuela sticks it to the oil companies again. Venezuela levied a "windfall profits tax" that will take 50% of all revenues over $70 per barrel and 60% of all revenues over $100 per barrel. Venezuela expects to take several billion dollars in this new tax. You may remember that Exxon and ConocoPhillips abandoned Venezuela last year when Chavez nationalized the oil fields. They are both suing for compensation in the world courts. Those left in the country took sharp reductions in their ownership of facilities and production but remained to try and recover some of their costs. This new tax will make that even more difficult.    

Jim Brown

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