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Mexico Needs to Produce More Gas to Ensure Supply Security

With growing demand for natural gas for power generation and other applications, Mexico needs to prioritize a domestic production increase, the head of Mexico’s National Hydrocarbons Commission told Reuters this week. “We need to diversify (sources of natural gas) because we are very concentrated,” Juan Carlos Zepeda said, adding that it would make sense to develop shale resources, which are estimated at more than 141 trillion cu ft of natural gas.

Like its oil production, Mexico’s natural gas production has been on the decline for years. After peaking at 7.03 billion cu ft in 2009, the average this year has been just 4.83 billion cu ft. Meanwhile, demand is growing fast and Mexico’s reliance on imports from the United States is deepening: total gas imports account for 84 percent of domestic gas demand and almost 100 percent of these imports come from Mexico’s northern neighbors—an uncomfortably high degree of dependence.

Declining production was the main reason behind the previous government’s decision to enact a sweeping energy sector reform that opened the doors to foreign oil and gas companies. The incoming government, however, headed by President-elect Andres Manuel Lopez Obrador, has begun a review of oil contracts closed by the previous government, seeking to make sure there was no abuse of the country’s natural resources.

Obrador has also pledged that his government will strengthen Pemex’s position rather than encourage more participation in oil and gas exploration from international companies. On top of that, Obrador in August said hydraulic fracturing will not be used to develop Mexico’s shale resources. The President has plans to pour billions into Pemex to improve its capacity for producing oil and gas, but with a fracking ban, around two-thirds of Mexico’s gas resources will remain untapped, according to a NHC commissioner.

“We’ll have to be convincing,” Hector Moreira told Reuters. “The priority of our national security related to natural gas does not allow the luxury of turning our back on this potential,” Zepeda added.

By Irina Slav for Oilprice.com

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