Tuesday, June 05, 2007

America And Mexico Face Depletion

I've been listening to the debate over immigration and thinking something important is missing here. Basically I think that the USA cannot build a wall separating itself from Mexico anymore than England can separate itself from Scotland. Our two nations' destinies are closely tied together, and no wall can change that.

Anyone who has read my posts knows that I see things from an energy perspective first, and Mexico is no exception. Do Americans realize that Mexico is a major supplier of oil to the USA? In 2006 America imported more oil from Mexico than from Saudi Arabia. We bought 1.445 million barrels every day from Saudi Arabia, and 1.556 million barrels per day from Mexico. Source is the Energy Information Administration. Mexican oil powers our SUVs. Perhaps Americans could be just a little bit appreciative?

Most Mexican production comes from a single huge offshore oilfield: Cantarell, which supplies us with vast quantities of high quality light sweet crude oil. All this oil goes directly to American refineries on the Gulf of Mexico, mostly in the New Orleans area. This has been a very good deal for America. Because the oil was high quality, we were able to process it in our vintage refineries with out the major upgrades it would take to process heavy or sour oil. This means we get the refining profits. The oil is nearby, and not subject to threats or vulnerabilities from hostile nations, like passing through the Straights of Hormuz, etc.

Now the good deal is coming to an end. Cantarell is in decline, and at a rate much faster than even the pessimists anticipated. In 2006 production fell by 20% from 2005's level. This is a catastophic rate of decline, may soon plunge the Mexican state into chaos. Mexico depends on the cash from its oil production to keep functioning.

So, what would be the appropriate action for America? Bolt the door and watch TV, while Mexico has its crisis by itself? I don't think this would work. Remember globalization? Like it or not, the USA and Mexico are practically married. There is no possibility of divorce. We are stuck to each other. Another reason that we can't ignore Mexico is that we need Mexico just as much as Mexico needs us. We depend on that Mexican oil. We depend on Mexican labor. Our southern cities have huge Mexican (and other hispanic) populations, and those millions of Mexican Americans are simply not going to disappear. I simply think America and Mexico will have to face their crises together and solve their problems together. Mexico does have huge natural resources that could benefit both nations. I believe and open border, and work permit program would benefit both nations. One writer who senses the coming crisis is Dan Amoss, editor of an investment newsletter. He sent me a rather hyperbolic pitch by email, trolling for subscribers. I can't find it on his site, but I have taken the liberty of posting it here: The Dominoes of Doom Are Falling South of the Border. I certainly don't agree with all Amoss writes, but at least he does try to tie together the many scary implications of peak oil.

update: here is a news item that confirms my point that America's problems and Mexico's are inextricably linked: Border violence pushes north.
And another one: the current and ongoing housing and mortgage collapse will exacerbate all USA-Mexico tensions. Remittances from Mexican home building workers are way down:
Remittances are the financial lifeblood for millions of Mexican families and a crucial source of foreign exchange for their government. The $23 billion that maids, cooks, gardeners and others sent home last year — almost all from the U.S. — topped the amount that multinationals invested in Mexico. But fallout from the U.S. construction industry, which employs 1 in 5 Latino immigrants, is now rippling south of the border. Growth in remittances to Mexico has slowed to a trickle.
America's and Mexico's economies are fast decending into recession.