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Mexico's Burgos Basin May Hold 10X More Gas

Mexico's Burgos Basin May Hold 10X More Gas

The natural gas potential in the Burgos Basin of Northeastern Mexico, similar to geology to the Texas Gulf Coast region, may be three-to-10 times higher than previously estimated, according to a comprehensive study by the Gas Technology Institute. GTI found that previous estimates, which put the total undiscovered resource at 9.7 Tcf, might actually be between 21 Tcf and 75 Tcf.

The previous estimates by U.S. and Mexican authorities were lower for a few reasons, said GTI's John Cochener, who was in charge of the study as project manager and principal analyst for resource evaluation. Government estimates are usually conservative, he said, and Mexico revised its oil and gas reserve accounting system to be more conservative about three years ago.

The second reason, he said, is that until the past few years, there had only been a "little bit of drilling" done, which made it difficult to assess the potential. From all indications, as production develops, the reserve potential is higher there than anyone had estimated. With only 10,000 acres now being developed, and the full scope of the basin not realized, "It's a lot more fertile than we thought," said Cochener.

In separate estimates of the basin's potential, Mexico's state-owned energy company Petroleos Mexicanos, or PEMEX, put reserve appreciation potential at 4.2 Tcf, while the U.S. Geological Survey put it at 5.5 Tcf for new field potential, with a total for the basin of 9.7 Tcf. "These estimates now appear to be conservative," said Cochener.

The Burgos Basin is an extension of the Texas Gulf Coast province, geologically speaking, with similar land formations, producing formations and expected ultimate yield. In the past few years, the basin's gas production has "increased more than four-fold. PEMEX has been successful in increasing production from the basin, and now appears on track for more increases in the future," Cochener said.

"Mother Nature in her geological distribution did not recognize the border that separates the United States and Mexico," said Cochener. "Burgos has the underlying potential to replicate the prolific adjacent Texas District IV historical production growth patterns that emerged 70 years ago."

Cochener said "the best part" for gas supplies is that the basin, as it is developed, will have access to today's better technology, guaranteeing that its reserves are fully tapped. Its mirror area in Texas, Texas District IV, which covers 17,200 square miles produced 3,625 MMcf/d in 1998, he said. Currently, the Burgos Basin is producing 970 MMcf/d in a smaller area.

Non-associated gas production in the basin should increase, said the study, "reaching a level of 2.3 Bcf/d by 2015." GTI noted that "the future impact on Mexico's overall natural gas production will be dependent on the success of PEMEX projects in the Burgos Basin and continued access to outside capital and technology."

GTI also found in its study that the drilling success rates for Burgos in development wells were "almost 100%," and exploratory wells were nearly 50% "very high compared to the U.S.," reflected by the "lower-risk nature" of the wells. GTI noted that the "low level of exploration implies that the entire region remains under-explored."

Drilling activity in Mexico has historically been low, averaging less than 500 total wells per year since the 1970s, Cochener said. "This activity can be compared to 20,000 annual wells in the U.S., or 2,500 annual wells in the Texas-Louisiana Gulf Coast region. The basis of the limited success in developing gas prospects in Mexico is more a function of limited capital investment than a limited resource."

If GTI's study proves accurate, the news would come at the right time for Mexico, which has been increasingly burdened with energy problems and high natural gas prices in recent months. Although it remains plagued by a lack of investment, if new natural gas production does not come on-stream in Mexico in the next two to three years, the country will have to import more than half of its gas needs, according to report issued last year by Mexico's energy regulator Comision Reguladora de Energia (see NGI, Oct. 30, 2000). The country now imports about 7% of its gas, mostly from South Texas.

Mexican officials predict that natural gas demand will grow annually at a rate of 9% in the next 10 years, requiring an investment of US$2 billion per year to finance exploration and production programs, and add storage and distribution facilities. Despite its large known gas reserves, Mexico is a net importer of natural gas, importing most from the United States.

GTI expects gas demand in Mexico to grow at a smaller rate, about 6.89% a year for the next five years. Cochener said the difference in the figures is that GTI expects the recent growth rates to moderate as the "factors causing this condition matures," and as the Mexican gas market expands to a larger base.

The increase in reserves also leads to a demand for pipeline import and export flows, said Cochener, which won't even out for at least four more years. He said that the "supply and demand projection for Mexico indicates that the country's demand for net imports will increase from less than 150 MMcf/d in recent years to 267 MMcf/d by 2005 before moderating."

The study can be ordered from GTI Baseline Center in Arlington, VA. Call (703) 526-7834 or send a fax to (703) 526-7805. You may also email GTI at baseline@gri.org.

Carolyn Davis, Houston

©Copyright 2001 Intelligence Press, Inc. All rights reserved. The preceding news report may not be republished or redistributed in whole or in part without prior written consent of Intelligence Press, Inc.

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