Production from the dry gas Eagle Ford Shale, particularly in Webb County, TX, has skyrocketed, and so has Mexico's gas demand. That would sound like an opportunity to anyone.
"There's no reason that Mexico should be chasing gas with the drillbit when they can buy it at the border for a lot cheaper," Howard Energy Mexico President Brandon Seale told attendees at a conference in San Antonio Wednesday.
He would say that. Howard Energy is developing the Nueva Era pipeline to carry gas from the South Texas Eagle Ford to Monterrey, Mexico where it will serve power plants northeast and northwest of the city as well as other end-users.
"Monterrey today is a market that passes through or consumes about 1.3 Bcf/d of natural gas, but it's basically topped out," Seale said. "There's no capacity available on existing pipelines to get gas into Monterrey."
Dry gas Eagle Ford producer William Deupree, CEO of Escondido Resources II LLC, can't wait for that new pipeline of Seale's.
Webb County, where Escondido is active, produces about 2 Bcf/d. That's up from just 100 MMcf/d seven years ago. While most producers have focused on the Eagle Ford's wet gas, Escondido and a few others have been poking holes in the play's dry gas window.
"There is a lot of gas to drill for in Webb County in the dry gas Eagle Ford," Deupree said at the Third Mexico Gas Summit. "The innovations are just continuing to go on and on and on.
“Five years ago, we thought a 5,000-foot lateral with 20 frack [fracture] stages was a big well. We just recently completed a four-well pad, 10,500-foot long average laterals, 72 million pounds of sand, 50 frack stages."
These wells are expected to be producing 50-60 MMcf/d, curtailed, he said. Current strip pricing supports development; $3.00/Mcf gas is enough. "The economics work...They're not great, but they work," Deupree said.
"I think you're going to see a lot of things coming into Mexico from this part of the trend. All of our gas in Webb County ties into the Howard system...It's going to be nice to just turn a valve and go just one mile across the border and we're there."
All that gas is good for producers and pipeliners, but it's going to be really good for Mexican consumers, especially as the country's natural gas infrastructure is built out, and liquidity and transparency emerge in the gas market, White Eagle Trading LLC CEO Robert Cooper said at the conference.
Despite its name, White Eagle isn't a trading company but rather an energy services provider.
End-users in Mexico have never had unbundled service; they had to take their gas from and pay the price to Petroleos Mexicanos. "Today, we're spending a lot of time in Mexico teaching our clients how United States natural gas markets work," Cooper said.
In order to work, market reform must stretch from the wellhead to the burner tip; that's where the efficiencies come from, Cooper said. Benefits stand to compound quickly as Mexico's gas market is expected to grow faster than its gross domestic product, thanks to the rapidly growing reliance on gas to fuel power generation.
U.S. shale gas "is huge," and it's going to support Mexico demand for a long time to come, Cooper said. With U.S. gas supply, Mexicans "can control their destiny."
It won't happen overnight, though. It took the U.S. gas market 30 years to mature to the point that it's at today.
Mexican end-users will need to balance their gas requirements on a daily basis on the country’s pipeline network, the Cenagas system. New systems are needed to manage imbalance activity. The market will need a pipeline capacity release system and electronic bulletin boards. Metering needs to be automated. U.S. storage facilities can help with balancing for now, but Mexico wants its own gas storage, too. Additionally, Cooper said, "a strong regulatory presence" is necessary to keep the market on track.
When Seale first started talking about the Nueva Era project a few years ago, Mexico was importing about 1.8 Bcf/d from the United States. That's now up to 4 Bcf/d.
South Texas, with its prolific and liquid gas market, stands ready to serve Mexico. But then there's a lot of gas in the West Texas Permian Basin, too. Can't that support Mexico demand, too?
"The fact is you can't really get Permian gas to northern Mexico as efficiently as you can get it from the Eagle Ford," Seale said. "It's going to lose 10-30 cents to get it there...I think the Eagle Ford is pretty secure as the most economic supplier of gas to Mexico."
Perhaps, but others are planning Texas projects to take gas out of the Permian to the Gulf Coast region and to Mexico via Agua Dulce. And then there are the recently finished Trans-Pecos and Comanche Trail pipelines taking gas out of West Texas to the border.
At the conference, Cooper noted the ongoing buildout of Mexico’s Cenagas system and its eventual greater connectivity with the Waha Hub in West Texas. “It's kind of like dropping an egg on the floor; it [gas] goes all over the place,” he said.