Few oil industry projects around the world are as ambitious as Mexico's Cantarell Project in the Bay of Campeche. The aim of the project is to increase production capacity on Mexico's supergiant oil field to over 2 million b/d. Indeed, given Mexico's self-imposed limits on its oil production, some analysts are questioning whether the goal is too ambitious. Others wonder where the future output from Cantarell will be marketed.
The project has cost close to $4 billion since it began in 1995, and according to Petroleos Mexicanos (Pemex) CEO, Adrian Lajous, it will cost as much as $18.9 billion in the 15-year period from 1997 to 2012, both in investments and operating expenditures.
For several reasons, top officials at Pemex took action on the project upon taking office in 1995:
- Well pressure on Cantarell has fallen dangerously low in recent years, from 270 kg/sq meter two decades ago when exploitation of the field began, to 113 kg/sq meter last year. Falling pressure has threatened to cause a rapid decline in output from the field.
- A rapid decision to implement a nitrogen-injection secondary-recovery project was made. This implies injecting 1.2 bcf/d of nitrogen into the field from four 300 MMcf/d nitrogen-production units, each of which, on its own, will be the largest of its kind in the world. This project soon turned highly controversial among engineers and in the local press, due to the unprecedented, untested nature of nitrogen injection on a field the size of Cantarell, with unique geological characteristics.
- A political decision was made to push up oil output quickly to help Mexico dig its way out of the financial crisis inherited by the government of Ernesto Zedillo in December 1994. Cantarell would be essential to this effort.
In 1996, officials made some not too public statements to the effect that Mexico would boost oil exports by 27% in just one year and oil output by one million b/d in the short term. Another key factor influencing Mexico's decisions at that time was Venezuela's stated intention to double its oil output from 3 million to over 6 million b/d early next century.
Indeed, output on Cantarell jumped from one million b/d at end 1994 to over 1.4 million b/d early in 1998, before Mexico was forced to reduce output due to the global oil glut that year. Current output on Cantarell, constrained by the output limits self-imposed by Mexico and OPEC nations, is close to 1.3 million b/d. Current output capacity on Cantarell is much higher, at 1.69 million b/d, Pemex says.
Mexico's crude oil exports currently are restricted at 1,520,000 b/d, about 500,000 b/d below capacity. Given that local refineries are operating at maximum capacity, the ceiling on oil exports agreed by the Mexican government with OPEC countries sets the limit on crude oil output levels.
CEO Lajous has staunchly defended the Cantarell Project, at a time when he has been taken to task by the press and congressmen, who have been surprised by the magnitude of the project and the investments involved. According to Lajous, Pemex could not reveal the size and the goals of the project back in 1995 due to marketing considerations.
In particular, it would be have been counterproductive for Pemex to reveal its output goals to its competitors.
"Three years ago it was vital for us to maintain discretion about what our intentions were," Lajous told the Mexican press. "We were worried about what the repercussions might be on the international heavy crude market, if there were news about a significant increase in the supply of Mexican oil and if there were knowledge of a calendar for that expansion. It seemed pertinent to defer, for as long as possible, any knowledge of the project on the part of our competitors."
He added that, at the time, it was considered important that the contracting of consulting and project management should not prematurely reveal the nature and scope of the project.
Later, when planning was completed, Pemex provided details of the EPC and public works contracts, while continuing to withhold information on the scope of the project.
The lack of available information on the Cantarell project turned into a political hot potato for top Pemex brass, with newspaper analysts asking how information could have been kept from global competitors in the oil market, when Pemex itself was subcontracting major works contracts to international firms.
Now, however, the question is whether the scope of the project has been too great for Mexico's still fragile economy and how Pemex might be able, at some point in the future, to market over 2 million b/d of heavy crude oil. Even some officials at home are suggesting that Pemex should, in fact, move away from Cantarell and seek to exploit fields with lighter crudes and a high gas-to-oil ratio, given Mexico's fast-growing need for more natural gas and its limited capacity to refine its heavy Maya-type crude.
Maya crude refineries
While only time and market conditions will tell whether global demand for oil will pick up enough for Pemex to boost oil output significantly, Pemex is working on creating a captive market for its Maya crude oil. These efforts begin at home, with plans having been drawn up to install cokers at all of Pemex's six major refineries, although only one of these six units, at Cadereyta refinery, has been built and is close to operational status. It will take another three years for three of the remaining five refinery upgrades to be completed.
The cokers will allow the refineries to process more Maya, reduce production of low-value resid, and turn high-sulfur fuel oil into gasolines and diesel. It is hoped natural gas will increasingly substitute for fuel oil in industrial uses in the domestic market.
According to current plans, in the year 2003 Pemex's six refineries should be processing an additional 600,000 b/d of Maya crude, which, in turn, may allow Pemex to export more lighter grades of crude oil.
Pemex has developed a marketing strategy which it hopes will ensure guaranteed refining capacity for Maya crude in U.S. and Caribbean refineries. So far, Pemex has signed agreements with five U.S. refiners to take an additional 475,000 b/d of Maya crude over the period 2000-2002. The five refiners have committed themselves to build new cokers to process Maya in exchange for delivery guarantees from Pemex.
The five refineries involved in the program are the Shell-Pemex Deer Park refining joint venture in Houston, Texas, which will take an additional 60,000 b/d, the Exxon refinery at Baytown, Texas (taking 65,000 b/d of additional Maya exports), the Clark USA refinery at Port Arthur, Texas (150,000-200,000 b/d), Marathon Ashland (100,000 b/d) and the Coastal Aruba Refining Company, at Aruba, Netherlands Antilles (100,000 b/d).
The Cantarell Project has been structured around 36 integrated EPC contracts and 27 purchase orders for large-scale equipment, all of which have been tendered in public bidding processes. Almost all of the contracts have now been awarded. The project involves drilling 214 wells, laying 250 miles of pipe, building 28 offshore platforms, plus modernizing existing infrastructure, leasing an FPSO unit and building a nitrogen-supply plant.
The 10-year lease on the Ta'kuntah FPSO, plus the future leasing of a second FPSO unit, is budgeted at $980 million. The Ta'kuntah can store up to 2.3 million b/d of Maya crude for export. The other immediate major expense is the start of purchases of nitrogen for injection into the Cantarell field with a view to maintaining pressure and thus allowing for faster exploitation of the field. Purchases of nitrogen over 15 years are calculated at $2.6 billion.
The nitrogen-supply plant and nitrogen-injection infrastructure are privately owned and will be built and owned at the expense of the private consortium which won the bidding process. The partners in the consortium are BOC Holdings, Westcoast Energy, Marubeni, Linde AG and ICA-Fluor Daniel. Pemex will receive high-pressure, high-purity nitrogen at the wellhead. The cost of the plant is believed to be close to $1 million and the BOC-led consortium recently closed financing on the project.
The consortium reports that some 50 miles of onshore and offshore pipeline have been installed for the nitrogen complex, which is close to completion on the Atasta peninsula, near Ciudad del Carmen, in Pemex's southern offshore area. The BOC-led group has a 15-year contract from Pemex to supply nitrogen for injection into Cantarell.
Close to 5,000 workers are involved in construction of the complex currently and commercial deliveries of nitrogen will begin in April of next year. The facilities will also include 500 megawatts equivalent of power generation capacity fueled by natural gas, plus a water-treatment plant and offices.
"The project is proceeding right on schedule. Installation of gas turbines, heat-recovery steam generators, compressors, heat exchangers and column cold boxes for the air separation units, and other major items of equipment are well on the way. The principal civil foundations are completed, and equipment, pipework and electrical power cables are being installed," said a BOC spokesman.
Nitrogen injection has also been criticized by former top-level Pemex engineers of the Constitution of 1917 Group, who say pilot tests and basic field studies have not been carried out - an accusation which Pemex has acknowledged to be true. They assure that pressure maintenance through nitrogen injection is unnecessary as a means of sustaining or increasing output, as has been proven by the fact that completing wells with wider (9 5/8-in.) diameters has tripled production on some wells operated by pneumatic pumping.
Another element of controversy is that the nitrogen is expected to contaminate the hydrocarbon production streams and the field's giant natural gas cap. Contamination is expected to reach critical levels in the year 2002. As a result, Pemex has announced it will build a new cryogenic plant to separate the nitrogen from the natural gas streams coming from Cantarell.
Nevertheless, Pemex officials assure they have done their homework and augur great success for the Cantarell Project. "The profitability of the project is exceptional," says Pemex's Lajous. "The plan of exploitation which has been adopted has an incremental cash flow which is positive almost from the outset. The current net value of the additional output is estimated conservatively at $32 billion," he adds.
Pemex officials have said, at several forums, that pressure maintenance will allow an additional one billion bbl to be recovered over the next 15 years, which represents a current net value of $17.7 billion. They also add that there are other additional opportunities of creating value from Cantarell.
Mexico's only supergiant field, which has been providing an average of a million bbl a day of crude oil now for 20 years, will apparently have at least another 15 years of highly productive life ahead before entering into a period of decline. Cantarell produces five times more oil than does Chac or Abkatun, the country's two other biggest oilfields in the offshore arena. In the absence of new giant discoveries, Mexico continues to hedge all of its bets on Cantarell to provide the oil income which is a lifeline for its economy, particularly for financing the federal budget.