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Analysis

Mexico's Shale Gas Resources

Tue, 01/22/2013 - 13:52

MEXICO’S SHALE GAS RESOURCES

 Shale oil and gas have gained increased importance in the global energy landscape, driven by an intensifying search for domestic energy sources in the United States to both strengthen energy independence and the country’s trade balance. In 2012, unconventional hydrocarbons were estimated to account for 6% of the world’s total crude production. By 2035, it is expected that the unconventional share of production will double to 12%. It is expected that close to 70% of recoverable shale gas resources will be found outside of North America.

In Mexico, Pemex started exploration activities targeting shale resources at the beginning of 2010. Through its E&P arm, the NOC identified the geological provinces of BurroPicachos, Sabinas, Burgos, Tampico-Misantla, Veracruz, and Chihuahua as prospective regions for shale gas and oil. The original surveys led Pemex E&P to establish three di†erent scenarios, which di†er strongly from the Energy Information Administration figures, estimated Mexico’s shale gas resources at 681tcf. The study by Pemex established that Mexico holds at least 150tcf of prospective resources, with a potential maximum of 459tcf. The expected prospective resources, though, amounted for 297tcf of shale gas. Because of Mexico’s geographic proximity to the US, plays within the Upper Cretaceous Eagle Ford formation – Ojinaga, Eagle Ford, and Agua Nueva – continue into Mexican territory. These plays have been distributed amongst the Chihuahua, Sabinas, Burro-Picachos, and Burgos basins. The Haynesville formation from the US also extends into Mexico, with its Upper Jurassic plays La Casita and Pimienta distributed amongst the Chihuahua, Sabinas, Burgos, and Tampico-Misantla Basins.

The unconventional learning curve developed by McKinsey & Company places Mexico at the second of three stages in the exploration phase, where uncertainty is reduced through exploratory drilling and information acquisition. According to Pemex’s shale gas plan, it will still have to develop a pilot for shale gas, and optimize well design and drilling, before entering into the development phase and consolidate the activities that have taken place to date.

From the six areas that Pemex E&P marked as prospective regions, the Tampico-Misantla basin has the most potential in shale oil, with 30.7 billion bbl of prospective oil resources, and 20.7tcf of wet gas. Both the Sabinas basin, with 49tcf, and the Burgos basin, with 44.3tcf, constitute the most important prospective regions for dry gas. Completing the list, Burro-Picachos is expected to hold 4.2 billion boe and Veracruz 0.6 billion boe, with Chihuahua still under analysis. The development of these areas depends heavily on five di†erent factors. The first factor is, of course, the price of gas: if gas remains under US$4/MMBtu, then these projects will struggle to become profitable. Better well designs and drilling technologies need to be developed to reduce the cost of wells. Infrastructure for collection, transport, and distribution needs to be built for shale projects to be profitable, and a special fiscal regime has to be developed for this kind of project, allowing additional deductions that could increase the interest in developing Mexico’s shale gas resources. Finally, a timely investment needs to be allocated to accelerate the pace at which the country develops shale reservoirs.

Comesa, the IMP, and Pemex are currently involved in a project funded by the Conacyt-Sener-Hydrocarbons fund to perform seismic surveys in the geological provinces that are expected to have shale resources. This will also enable Pemex to identify the areas with the greater short-term potential for profitable shale oil and gas development, allowing Pemex to establish a hierarchy of projects based on these factors. Once the information is obtained, exploratory wells will be drilled for concept and productivity testing to be executed. Some shale wells have already been drilled to assert their potential. The Emergente-1 and Habano-1 wells were the ones that originally confirmed the continuity of the Eagle Ford play’s dry and wet gas resources into Mexican geology.

Percutor-1 also proved the extension of the play into the Sabinas basin, while Nómada-1 and Montañés-1 have so far yielded no results. On the other side, the Arbolero-1 well proved the existence of shale gas in the Upper Jurassic formations of the Sabinas basin. Anhélido-1 was also successfully drilled in the Upper Jurassic formation of the southern Burgos basin, already yielding 288 b/d of shale oil. During this first stage of Pemex’s shale exploration strategy, drilling operations for a total of 172 additional wells are planned, including drilling Nuncio-1 in the Upper Jurassic formation of the southern Burgos basin.

The next stage in the strategy will be to reduce uncertainty through the geological characterization of the provinces that hold prospective shale resources. Studies that have so far been conducted by Pemex to define the maturity of the resources, the organic content, and the structural complexity of the well have determined that the BurrosPicachos and Tampico-Misantla basins are the two geological provinces next in line in Pemex’s hierarchy. The Burgos basin comes closely ranked after that, followed by the Sabinas, Veracruz, and Chihuahua basins. The company plans to implement an integrated field lab strategy for the discovered reservoirs at the Burros-Picachos and Burgos basins. The objective behind this business model is to determine the reservoirs’ behavior and productivity in order to go through the shale learning curve that will eventually lead to mass development.

If the exploration strategy yields the expected results for Pemex, the NOC is expected to continue its shale endeavor by identifying and assimilating technologies to enhance productivity and minimize environmental risks, thereby reducing the costs of the project. The development plan for the eventual massive exploitation of shale gas is destined to include new fracturing technologies to increase production, cost e·ciency, and sustainability. This final stage could lead to the country’s mass development of shale plays, by drilling an approximate 27,000 additional wells for future extraction.