When the National Hydrocarbons Commission of Mexico scheduled its first-ever shale tender for September this year, the July elections were obviously not front and center in the thoughts of its management. Yet now, this tender may be as good as gone after President-elect Andres Manuel Lopez Obrador said last week,“We will no longer use that method to extract petroleum.”
Obrador was responding to a question about the risks of hydraulic fracturing, the technology that enabled the U.S. shale oil and gas boom and that some believed could be replicated in Mexico, especially for gas production.
The Energy Information Administration (EIA) estimated in 2013 that Mexico has unproved but technically recoverable shale gas resources of 545.2 trillion cubic feet. Most of this, around 343 trillion cubic feet plus about 6.3 billion barrels of oil (half of the total shale oil resource base), is located in the Burgos Basin, which is connected to the Eagle Ford shale play in Texas and covers a much larger area.
While these resources remain largely untapped, Mexico’s natural gas demand is rising, and with it, the country’s dependence on U.S. imports. The Energy Ministry estimated at the beginning of this year that gas demand will average 8.32 billion cubic feet in 2018, compared with 7.99 billion cubic feet in 2017. This will further rise to 9.66 billion cubic feet in 2019. By 2031, gas demand will have risen by 26.8 percent from 2016 levels, the ministry, known as SENER, said at the time. Related: Goldman Sachs Expects “Very, Very Tight” Oil Market
To date, Mexico imports as much as 85 percent of the gas it consumes, the head of the Hydrocarbons Commission, Juan Carlos Zepeda, recently said, adding that this makes increasing natural gas production a higher priority than boosting oil production. Such a heavy reliance on imports, according to Zepeda, carries not just geopolitical risk but also operational risks: a natural disaster could disrupt supply.
And yet imports are rising while domestic production is falling. State-owned Pemex holds the development rights to 90 percent of the country’s gas reserves, yet it cannot develop them without a cash-strong partner.
In this context of heavy dependence on imports and rising demand, shale gas could look like an obvious part of the solution along with conventional gas deposits. However, a ban on fracking might not actually be as significant as it sounds because developing Mexico’s shale gas resources is already a daunting task. There is no well-developed infrastructure in the regions where the shale reserves are located, there is an abundance of gangs there, and perhaps most importantly, water supply is tight, and fracking is a very water-intensive process.
All these factors would be enough to make fracking companies think twice about entering the Burgos Basin in the new post-2014 energy world of low risks and high returns, so in reality, a ban on fracking in Mexico might not make much of a difference for the country’s energy supply developments. After all, the blocks that were supposed to be tendered in September contained total reserves of 54.16 billion barrels of oil equivalent, most of it gas. Of this total, however, just 1.16 billion barrels were shale reserves.
By Irina Slav for Oilprice.com
More Top Reads From Oilprice.com:
- Something Strange Is Happening In The Saudi Oil Patch
- Diesel Trucks Aren’t Going Anywhere
- Locked Into Hedges, Shale Misses Out On Oil Price Rally