Opportunities, Challenges for Production in Unconventional Plays
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Opportunities, Challenges for Production in Unconventional Plays

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Perla Velasco By Perla Velasco | Journalist & Industry Analyst - Mon, 10/31/2022 - 14:12

In October, CNH published a document to present the fundamentals of the hydrocarbon production chain for unconventional plays. This document highlights the opportunities and challenges that Mexico faces to produce oil and gas in these areas.

According to CNH, one of the most productive areas in the US are unconventional plays in Texas: the Permian Basin and the Eagle Ford Group. The latter extends to Mexican territory. Oil and gas production from unconventional plays represents a massive opportunity for Mexico to increase its desired energy self-sufficiency, which many factors continue to jeopardize. Mexico’s dependence on US natural gas has increased by 84 percent over the last 20 years, for example.

CNH identified five major areas of opportunity for Mexico’s production strategy. Firstly, the use of information and international experience on unconventional deposits such as Eagle Ford. Secondly, available technology: Canada and the US are countries with vast experience in these types of plays, and their environmental characteristics are similar to the US-Mexico border environment. A reduction in emissions is a further opportunity, as global trends demand that operations reduce harmful emissions. While the supply chain for these activities is not fully developed and therefore poses a challenge, it is also an opportunity to create more economical activity through development. Furthermore, cheaper and greener energy can be beneficial, since energy obtained from a relatively clean gas-fired combined cycle plant is one the cheapest ways to produce power with fossil fuels. Finally, the further development of the national petrochemical industry represents a major opportunity. If Mexico would produce its own gas, this sector could benefit. By the time Mexico imports dry gas, most of its petrochemical components are removed. Therefore, petrochemical players need to rely on more expensive imports.

CNH also identified five key challenges for unconventional production in Mexico: firstly, Coordinated regulation, as there is a lack of integration on regulatory and normative frameworks to coordinate technical, environmental and social aspects of production. Secondly, the integration of communities in operations, since a lack of information generates discontent. Thirdly, economic alignment to overcome technical and economic challenges. Furthermore, water consumption is an important issue, as unconventional play development implies heavy water use, sometimes in areas where this resource is scarce. Finally, updating the tax regime: the current regime taxes on terms of production rather than utilities, which makes it difficult to attract investment since low-production fields with high profitability are adversely affected.

As reported by MBN, experts agree that greater investment in the unconventional and deepwater industries is needed. Mexico has great potential in terms of prospective resources, with an estimated 112.9Mboe, most of which comes from unconventional reserves of shale gas. PEMEX is currently assigned 36 percent of Mexico’s prospective resources, 20 percent of which is gas and 80 percent crude. Contracts awarded in bidding rounds account for 12 percent, while 52 percent remain unassigned.

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