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News Article

Future Role of National Gas Production for Mexico’s Demand

By Miriam Bello | Thu, 07/15/2021 - 15:32

You can watch the video of this presentation here.

When Texas´ natural gas infrastructure was damaged by an unprecedented climate event at the beginning of 2021, it did not take long for Mexico to be greatly affected. The magnitude and scale of this impact became the last of many wake-up calls for Mexican leaders to address the country’s overwhelming dependence on natural gas imports.

There are immediate measures that must and can be taken, such as the diversification of the sources from which this natural gas is to be imported, nevertheless, another matter hangs in the air: national natural gas production could rid the country of this dependence altogether.

This question used to be ignored given the economic advantage Mexico enjoyed through natural gas imports, due to the constant low price of American natural gas. Nevertheless, this new context demonstrates that this status quo must be challenged more vigorously.

Considering a government that continues to emphasize the importance of energy independence, sovereignty and self-reliance but at the same time continues to delay the development of a comprehensive national natural gas plan, a space is much needed to explore the most important scenarios and opportunities that national natural gas production currently presents.  

To contextualize Mexico’s current scenario and future opportunities, Warren Levy, CEO of Jaguar Exploración y Producción was part of Mexico Oil and Gas Summit on July 15 and presented clear opportunities for Mexico to succeed if supported by the right company’s strategies. Jaguar is the largest oil and gas company that is focused on material natural gas development and exploration in the country. The company is also the largest holder of government’s contracts, with 10 blocks acquired in licensing rounds; 5 blocks in Burgos, 2 in Veracruz, 2 in the southeast of the country, and 1 block in Tampico-Misantla.  Jaguar has almost 200 employees, which, according to Levy, act based on the company’s core values “be the energy for positive change.”

Jaguar is the only significant independent onshore acreage holder in Mexico, “an attractive country with huge potential to continue to invest in,” said Levy. He explained that Mexico’s state’s own oil company, PEMEX, dominates the Mexican oil and gas industry, meaning that 92 percent of the Mexican onshore blocks are owned by PEMEX and 8 percent of those blocks are distributed among private companies. From that 8 percent, half of those blocks belong to Jaguar contracts.

Levy mentioned that Mexico has onshore potential yet to be unlocked as it is one of the largest hydrocarbon resources based in the Americas with significant untapped onshore potential. Mexico is considered the 19th country with the largest recoverable reserves; it has a 1.7 daily oil production and a 4.7 daily gas production. Moreover, the country is number one on the Ease of Doing Business Raking by the World Bank Latin America and Caribbean. “The Oil and gas market is closed for new investors given the current administration’s strategy where bidding rounds have been cancelled until awarded contracts show production results,” explained Levy.” Private operators have grown production while PEMEX’s production is in decline.

On the other hand, according to Levy, despite natural gas being a critical source of energy for the country and its enabler for energy transition, 40 million Mexicans do not have access to natural gas for domestic consumption, thus, they use traditional energy sources such as lighting fires. “Mexico generates 21 percent of electrical power from renewable sources, but less than 2 percent of total energy consumed comes from renewables.” Levy exposed Mexico’s natural gas consumption by sector; which is driven by power generation by a 67 percent, industrial and petrochemical use take up 31 percent, residential use 2 percent and transport and services just 1 percent. Germany, the UK and Sweden head the list of countries using renewable energies at a higher percentage.

“Mexico’s electric power generation is driven by gas with a 64 percent, renewable energies by 13 percent, and bunker fuel by 8 percent,” said Levy. The rest of the technology or fuel used is divided between hydroelectric energy (7 percent), carbon (4 percent), nuclear energy (3 percent) and geothermal energy (1 percent).

Levy also exposed Mexico’s dependency on natural gas production. “The Northern half of Mexico is connected to US’ grid and trades at US references, plus transportation.” The cold waves that froze Texas' natural gas at the beginning of the year left between 30 and 40 million Mexicans without electricity and affected the country´s economy as a result, this highlights the dependence on the US. He pointed out that the southern region of the country is isolated from these resources facing steep declines in gas production “remote areas in Mexico have a higher cost and consumption of energy, while still having lower income levels.” The places with the largest natural consumption are Monterrey, Veracruz Guadalajara and Mexico City.

Levy explained that Mexico loses US$6.7 billion per year for the amount of gas imported from the US. As gas demand continues to rise, Jaguar exploration prospects (11.6 Tcf) equal to almost 22b years of current domestic production.

“Energy is the hidden challenge for Mexico, thus, it is important to introduce sustainability strategies, such as Jaguar’s work in the country,” explained Levy. Jaguar’s Sustainability Strategy compresses gas at well head, commercializes via trucks direct to consumer, leaves a minimal footprint, has a faster set up, facilitates production from wells that cannot justify a pipeline, and additionally, it is the CNH’s first time approved virtual pipeline.

“Mexico needs more companies like Jaguar, willing to invest on its assets and potential industries,” said Levy, “Jaguar is currently building a future for Mexico through natural gas.” To get a more sustainable future, private companies have a key role to play. Natural Gas is the only source of energy available for Mexico that can make a positive impact today. As Levy said, this would keep more money flowing in the Mexican economy, reduce emissions immediately, provide cheap and reliable power where it is needed, build a bridge to future energy matrix that is greener, and would ultimately be a key source of fuel to drive economic growth and create jobs.  

Photo by:   MBN
Miriam Bello Miriam Bello Journalist and Industry Analyst