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Is Natural Gas a Feasible Solution for Mexico?

By Jose Luis Mercado Ponce - Grupo México Infraestructura

Commercial and Institutional Relations Vice President

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This article addresses several arguments, both formal and some gossip, with regard to Mexico’s position related to natural gas resources, their existence under Mexican soil, and to what extent they would be available, and if so, who could explore, extract and commercialize them. My aim is to reflect the fact that we know for certain that the resources are there and all it takes is the willingness to allow the private sector to complement PEMEX’s efforts through investment and technology for both the production and the infrastructure to place gas where it is needed and to store it for national security.

Natural gas is key to the country’s national development and for relevant sectors, starting with power generation, where the electric sector consumes about 55 percent of the national demand, estimated at 8,200MMcfd1. The remainder of this demand is due to industrial consumption by PEMEX (chemical and petrochemical) and industrial manufacturers as well as domestic consumption.

A very good briefing by Daniel Yergin2 makes it evident how much the combined efforts of faith, science and technology can achieve in the search for solutions, as he explains the story of George P. Mitchell, “the gas man” whose effort and belief – and later through the continued interest of Larry Nichols – who made possible the economic development of shale gas (and shale oil) that revolutionized the oil and gas industry in the US, optimized production and turned the US from a large importer to one of the world’s largest exporters.

The history in Mexico is different. Our country has decreased its production of both oil and, more importantly, gas, which now we import largely from the US (68 percent)3. Such a large dependance on US gas represents a serious threat to Mexico’s energy security, as was evident in February 2021, when a winter storm hit the US Southeast and froze the pipes that nourish our country with said hydrocarbon. According to a recent study by the Bank of Mexico, that event alone resulted in a 0.22 percent decrease in the first quarter of 2021, as compared to the previous quarter.4

According to CNH (National Hydrocarbons Commission), there should be about 248 trillion cubic feet of gas under Mexican soil, and about 65 percent of that would be unconventional onshore reservoirs in northern Mexico (Burgos, Sabinas and Burro-Picachos), a continuity of the geological path of the southern US. To make it available, we should not reinvent the wheel but, rather, take advantage of the latest unconventional technologies, like slick water fracturing and horizontal drilling. Of course, there is one more ingredient needed: huge investments. Provided that PEMEX has neither the technology nor the resources, it would be logical to invite the private sector to bring both. Further to those reservoirs, Tampico-Misantla, the southeast and the deep waters of the Gulf of Mexico are very promising gas rich reservoirs1.

It is my belief that if the current administration seeks to provide the means for our economy to grow steadily, without the need to legislate or change anything, just by providing certainty on the rule of law and instruct the authorities at a national level – the Energy Ministry and the regulators – to perform their role, there is still an excellent chance that private investors in the oil and gas industry would be willing to add their good practices, knowledge and financial resources to join forces with the national oil company, PEMEX, and develop both mature and new fields, conventional and unconventional. I could not agree more with CNH Commissioner Héctor Moreira that Mexico’s northeast has a great opportunity to promptly develop natural gas.5

Recently, the private companies that were granted E&P contracts – whose existence was guaranteed by the president himself upon his election – made the announcement that their production had achieved the target of more than 100,000 BOED (Barrels of Equivalent Oil per Day).6 These facts confirm the extent of a serious commitment by national and international companies that conform the oil and gas industry.

I highly recommend reading a Mexico Business News article by my friend Jorge Pedroza, Energy Transition in Mexico: Risks, Opportunities for O&G, where he clearly warns about how crucial it is to maintain a reliable risk management in order to turn risks into opportunities. I could not agree more with his statement that “the authorities should keep the dialog open with investors to develop clear and assertive long-term public policies prioritizing the Energy Transition.”7

In order to reach some conclusions, hereby, I recall that this administration often tells us that national security and sovereignty over the energy-related resources of the country are its top concerns. As we have seen in different countries, international oil and gas companies compete and enter foreign countries, risking their financial means to help explore, find, develop and share with the governments of those countries the output of their production. Those related countries do not lose their sovereignty, they only profit from the efforts and resources somebody else put in to complement those of the national oil companies (NOCs) and add to their income through taxes and royalties.

Furthermore, in the era of energy transition, more and more international oil and gas companies are turning to more sustainable methods of producing energy, and the new technologies to move people and or goods continue to evolve toward electric vehicles, competing for the allocation of financial resources to develop such programs. Soon, it is likely that some hydrocarbons will remain unexploited due to economics and the more sustainable approach of using renewables. In my personal view, this is the proper time to invest hard into developing our gas as a bridge to the transition: It has been more than demonstrated that today, the more convenient and less expensive way to generate power is through combined cycles.

And finally, I will touch on the issue of security for the long run: We know that our inventories are rather scarce, and that we practically live on a day-to-day basis when it comes to gas supply; there is a big risk that the lack of supply will eventually freeze our activities. A good number of countries, mainly those that are developed (Europe and the US), rely on storage systems and usually have the backing of caverns or depleted oil fields as the “artificial reservoirs” where they store their supply needs for as much as three months’ worth of daily consumption. We lack that kind of prevision, and we should address such a contingency soon.