Natural Gas Key for Mexico’s Long-Term Energy SecurityBy Conal Quinn | Tue, 09/06/2022 - 13:25
The pivotal role to be played by natural gas in the energy transition is something Mexico does not quite appreciate yet. Nevertheless, in the coming years, the importance of natural gas as a cleaner fossil fuel is only going to grow, outlined CNH Commissioner, Héctor Moreira.
The term natural gas is used to refer to many different substances. When discussing extraction from wells, a substance called hydrocarbon gas is produced in addition to oil and water. This hydrocarbon gas is made up of two parts: natural gas, which consists of hydrocarbons from C1 to C7, and other components and contaminants, which include carbon dioxide (CO2), nitrogen (N2), water (H20) and hydrogen sulfide (H2S). The quantity of each component depends on the play. At Cantarell, for example, Nitrogen makes up more than 30 percent of the gas emitted from a well. For this reason, it is important to distinguish between natural gas, which refers to hydrocarbon gas, and the other accompanying gasses emitted.
To be captured, the gas must first be cooled to separate the natural gas (C1-C4) from the liquid condensates (C5-C7). Pressure is then applied to separate the dry gas (C1-C2) from the LPG (C3-C4). This dry gas is what the US sells to Mexico, not natural gas, Moreira was keen to underscore the distinction.
From this point, even more pressure and cryogenic freezing can be applied to separate natural gas into methane, ethane, butane and propane, which Moreira referred to as the “petrochemical precursors,” since this extra process is only required when the gas is intended for use in the petrochemical industry. Regarding consumer goods, methane is used to produce fertilizers, resins, solvents and adhesives, ethane for polyester, refrigerants, PVC, polystyrene and plastic bags, propane for plastic fibers and acrylics and butane for tires.
As intermediaries, methane can be used for ammonium phosphate, formaldehyde and acetic acid, ethane for vinyl chloride, styrene and polyethylene, propane for propylene and acrylonitrile and butane for polybutadiene, isobutane and isobutylene. Despite the somewhat misleading prefix, 86 percent of all the world’s petrochemical products are produced using gas. Underscoring the importance of natural gas for this plethora of petrochemicals, Moreira remarked that “A large part of the revenue Mexico generates by exporting crude oil is immediately spent on importing petrochemical products we do not make enough of ourselves.”
Other hydrocarbon gasses have important uses, too. Moreira explained that dry gas is used both as a combustible and to produce power. LPG is also used as a combustible, while condensates are used for refining to facilitate the processing of the high viscosity, heavy crude Mexico typically produces.
As a fuel, dry gas is the cheapest on the market, at least in Mexico. Compared to diesel and gasoline, for example, which cost MX$624/GJ (US$30.9/GJ) and MX$691/GJ (MX$34.3/GJ) respectively, dry gas is a fraction of the price at MX$149/GJ (US$7.4/GJ). LPG, meanwhile, is the most expensive at MX$944/GJ (US$47.9/GJ). For generating electricity, dry gas is almost six times cheaper than petroleum, while emitting less than half the emissions. While renewable electricity sources such as onshore wind and solar power cost roughly the same to run, the initial capital expenditure required to initiate such projects is triple the cost of equivalent combined cycle infrastructure. Moreover, in Moreira’s view, renewables have a carbon footprint when we consider for example the emissions released in manufacturing solar panels. “The future of power production will come from renewable energies and natural gas. This is a perfect marriage since gas offers a constant supply while renewables are intermittent. When there is little wind to power turbines, that is when we call upon gas,” noted Moreira, underscoring yet another factor in natural gas’ favor.
The next question is how well-positioned Mexico is in terms of reserves of this valuable resource. In total, Mexico counts on just over 31bcf of 3P reserves, which at current production rates is enough for 20 years of domestic consumption. The country has a further estimated 22.47bcf in prospective reserves, of which more than two-thirds come from unconventional plays in the Burgos, Sabinas-Burro-Picachos and Tampico-Misantla basins in the north of the country. To put these figures into perspective, Mexico is ranked 18th globally in terms of oil reserves. However, for gas, Mexico climbs to the sixth spot in the world, which Moreira argued will provide the country with much-needed energy security going forward.
Considering that PEMEX mostly consumes the gas it produces, 70 percent of Mexico’s gas needs are imported, primarily from the US. The percentage of natural gas on the market which is imported rises 85-90 percent when we exclude PEMEX’s consumption. This, of course, comes at a high cost and so far, faltering gas production has been a strategic oversight in the push for energy sovereignty. In Moreira’s view, “it is simply unsustainable to depend on imports for 70 percent of national electricity generation (...) For example, when harsh weather hits Texas, the repercussions are felt in Mexico with interrupted gas supplies.” Moreira therefore saw it as a national priority to increase gas production.
To this end, Moreira proposed increased exploration to open new gas plays in states such as Tamaulipas and Coahuila, as well as the creation of a new state-owned company dedicated to the exploration and production of unassociated natural gas. Moreira believed that PEMEX’s need to balance the books has caused the NOC to neglect gas production since the revenue produced from gas sales is lower than oil sales. He also supports fiscal restructuring to further incentivize the development of natural gas projects as well as a program to promote unconventional gas production.
“It is somewhat of a contradiction to not exploit unconventional reserves at home for fear of environmental reserves while continuing to import natural gas produced from unconventional plays across the border,” Moreira noted. While acknowledging that the pressure that fracking exerts on the earth does indeed produce tremors, Moreira pointed out that there has not been a single earthquake recorded higher than magnitude 3 because of such actions so far. In any case, Mexico City is subject to 3,000 earthquakes below magnitude 3 annually. Moreira also called for more long-term gas production contracts to be handed out and storage facilities to be constructed in Mexico for when demand is lower in the summertime. What is more, a national network of natural gas transportation should be erected across the country to guarantee supply to every state. Finally, the country should carry out supply chain improvements to manage increased production rates.