What’s Shady About Underground Natural Gas Storage in Mexico?

Underground natural gas storage facilities should have been a priority on the agenda of Mexican policymakers for decades and yet not even one has materialized within its subsoil. This is peculiar since, according to Edigaz, “North America concentrates two-thirds of the sites (440 facilities) and accounts for almost 40 percent of global working gas capacity.” When considering that Mexico is part of North America, it is perplexing that its neighbors account for most of the sites worldwide, followed by Europe with the second-largest underground capacity.

Notably, underground natural gas storage (UGS) has become a priority on the agenda of policymakers and companies as a result of the ongoing global gas crisis. In fact, Edigaz has noted that, as of 2018, even before the current conundrum, “the construction of natural gas storage infrastructure has been upgraded to a national policy” in certain jurisdictions. For example, In March 2018, the National Development and Reform Commission of the Republic of China “has required gas suppliers, city gas distributors, and local governments to have storage capacity equal to 10 percent, 5 percent, and three days of their annual sales or consumption, respectively, by the end of 2020.”  

The advantages of USG are commonsensical. First, as happens with any goods, storage provides security. When natural gas production surpasses consumption, it can be stored. On the contrary, should demand rise, it can flow to the market. In the US, 20 percent of total natural gas consumption comes from USG. It is also a valuable aid in times of distress, to which we are witnesses, as transmission lines are disrupted due to the already drawn-out turmoil between Russia and the Ukraine. It mitigates price volatility and strengthens reliability of delivery. In sum, USG enhances the resilience of gas delivery and supply.

USG can be done in three subsurface structures: in depleted hydrocarbon reservoirs, in aquifers and in salt formations. Globally, 80 percent of these facilities are located in oil and natural gas fields to take advantage of existing wells, gathering systems and pipeline connections. The wide availability of depleted oil and natural gas reservoirs, and ready to use infrastructure, account for their widespread usage as containers. Nonetheless, above-surface facilities exist in storage tanks. In Mexico, LNG regasification or liquefaction facilities have been deemed to serve as storage when in truth their purpose is not to maintain the hydrocarbon in place but to let it flow into transmission lines, either for import or export, respectively. 

Regarding natural gas, Mexico is a vulnerable country. While it cannot be said that there is a shortage of the hydrocarbon per se, it relies almost entirely on the US as a supplier. Also, in the course of 2022, imports of this fuel have soared dramatically, while competing with the aching demand from Europe as winter chills draw closer. From the political angle, the US-Mexico bilateral relationship is facing unprecedented awkwardness, if not animosity. USMCA violations have been pinpointed by the Biden government as the bitter fruit of López Obrador’s energy policy and a period of consultations is taking place as we speak to resolve such contentions. While it would be a somewhat far-fetched assumption that Biden could or would desire to restrict natural gas exports to Mexico, there is one indisputable fact: Mexico lacks minimal natural gas storage, of any kind and siting. This is particularly alarming in a country with a power industry that is an avid consumer of the molecule and has a relentless policy to maintain its addiction. Under López Obrador’s rule, a more diversified energy mix is not bound to occur, nor the energy security he has vowed to attain. Natural gas production is down, demand is skyrocketing, supply is tight and there is zero storage. Mexico is concocting a world-class energy crisis for itself that  will impact power generation, industry and the normalcy of the everyday life of its residents. 

During the past two decades, there have been a handful of attempts to conceive USG in depleted natural gas reservoirs, to no avail. One initial recollection was the initiative of Tidelands Oil and Gas, which took place at the beginning of the millennium. The overall project went way beyond USG and was envisioned as the creation of a natural gas hub, with transmission and distribution lines, for the industrial complex of Northeastern Mexico. Had it materialized, the supply crunches suffered in this region would have been avoided or at least minimized. Among other reasons, which were related to finding a reliable natural gas supplier and securing demand, the project was stalled by the location of the technically depleted dry gas field that was occupied at that time by PEMEX E & P. Although there was significant information leading to the conclusion that the reservoir was, in fact, depleted, neither the company nor the Energy Ministry gave way for a private company to enter PEMEX’s sacred terrain.

The 2013 Energy Reform closed some of the gaps to allow the concretion of USG in Mexico. For the first time, legislation conferred recognition on USG in depleted reservoirs. Later, in March 2018, the National Hydrocarbons Commission issued an opinion in which it was stated that the Acuyo, Jafa and Saramako fields were officially declared depleted and could be used for USG. However, there remain legal questions that have not been clarified, neither by the law nor by any competent authority: Who is empowered to grant the use of the depleted reservoir? At what cost? By which title? It seems like a trifle but it is not. It is a true legal barrier toward materializing such projects. A geological structure, such as a depleted reservoir, is a national asset. There is, however, the mystery regarding which agency in the Mexican bureaucracy holds the key to its access. This is particularly absurd as value could be obtained from national assets that could be used while creating value and energy security. That is one shady little detail that, until today, has caused a huge encumbrance to move onward toward these projects. Four hundred and forty UGSs in North America. Zero in Mexico. What are we waiting for to get on with what could bring great benefits at efficient costs?