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News Article

Unassigned Natural Gas Reserves Key to Energy Sovereignty

By Cinthya Alaniz Salazar | Wed, 09/21/2022 - 13:04

Annual extreme weather events and political instability have compromised sustained natural gas pipeline exports to Mexico. The resulting price hikes and rippling macroeconomic impact have outlined a clear need to move away from dependency on imports and toward domestic energy sovereignty. Considering this federal ambition, the Mexican Association of Hydrocarbon Companies (AMEXHI) proposes that the state should begin the process of leveraging its more than 500 blocks of unexploited natural gas reserves.

“As observed from past events, natural gas supply chain disruptions in the US had and will continue to have important social and economic consequences in Mexico. Untapped natural gas reserves present Mexico with the opportunity to become an energy-sovereign country, to the benefit of its people and economy,” said Merlin Cochran, General Manager, AMEXHI.

Mexico currently depends on the US for over 70 percent of its natural gas imports, a figure in complete contradiction with the state’s push toward energy sovereignty. The US is liquifying its gas and exporting more, specifically to countries looking to diversify their energy inputs considering the recent upheaval in Eastern Europe. For Mexico, this means the price of liquefied natural gas (LNG) is getting closer to that of natural gas, as per Houston Ship Channel and Henry Hub pricing, the gas markers the country uses to import gas through pipelines. 

Consequently, the spot price of natural gas that is paid in Mexico has tripled, while the margin between LNG and natural gas has shortened. This is of major consequence to Mexico’s prominent manufacturing industry, one of the largest consumers of energy, incurring a knock-on effect on the country’s GDP. In short, after a 300 percent increase in the price of gas and no other means to diversify consumption, the domestic production of natural gas has become a matter of national interest.

Disruptions to the supply of natural gas to Mexico “generated temporary suspensions of power production, which in turn caused temporary stoppages of productive activities. The Bank of Mexico estimated that these disruptions could have subtracted 0.22 percentage points from the country's GDP growth rate,” according to a Banxico Report.

In light of these evolving circumstances, it is necessary for the federal government to begin exploring the use of unconventional resources like unassigned reserve zones. Harnessing them to increase production just four times over would make Mexico completely gas independent, according to AMEXHI estimates. “We are sitting on a gold mine and we are not doing anything about it,” said Cochran. Furthermore, clear indicators from the federal government can mobilize the flow of private investment expected to bring an estimated US$56 billion over the next two decades, according to the AMEXHI 2020 report, as well as foster an income of US$104.52 billion for the state.
“This industry has proven its worth and the industry is committed to Mexico for the long term. We hope that there are many opportunities in the future, otherwise, Mexico will enter a phase of consolidation that is in nobody’s best interests. AMEXHI hopes that the results in terms of production, royalties and even social license have proven this,” Cochran told MBN.

The data used in this article was sourced from:  
Banxico
Cinthya Alaniz Salazar Cinthya Alaniz Salazar Journalist & Industry Analyst