Mexico needs to revive its bidding rounds for new areas and open itself to the possibility of hydraulic fracturing (fracking) if it seeks to increase domestic natural gas production and stem the flow of imports from the United States, according to Commissioner Héctor Moreira of the country’s upstream regulator Comisión Nacional de Hidrocarburos (CNH).
Speaking at the 5th Mexico Gas Summit in San Antonio, TX, on Wednesday, Moreira said Mexico needed to apply an “oil mentality” to its natural gas reserves.
“We have to increase investment. We have to change the policies and the tax situation for producing gas. We have to change the mentality for natural gas and apply the oil mentality for it.”
Moreira said that of domestic production of 3.8 Bcf/d, one-half is used by state oil firm Petróleos Mexicanos (Pemex) for its operations and for pressure at fields. Imports currently account for 5.373 Bcf/d, or 78% of Mexico’s dry natural gas requirements.
Consumption of domestic gas by the market is only slightly more than 1 Bcf/d. Moreira said that to increase output, new bid rounds -- currently suspended for three years -- are needed. In December, the CNH cancelled onshore bid Round 3.3, which would have placed on offer nine blocks targeting unconventional gas resources in the Burgos Basin. It would have been the first auction for unconventional acreage in Mexico’s history.
These bid rounds could resume this year, the CNH has suggested, but for that to happen “decisions need to start being made now,” the CNH commissioner told the audience.
Even if domestic production increases 39% to 5.3 Bcf/d by 2024, which is the goal of the current government, “new production will only cover new consumption and imports will remain practically the same. We expect a big increase in production but not enough to change the import picture.”
Crucial to increasing natural gas production is the use of fracking to unearth Mexico’s vast unconventional resources in the north of the country, he said.
“The majority of our resources are unconventional. We have to move from the production we have now, to fracking. We need to make fracking the technology of choice for northern Mexico.”
For example, “Chihuahua is just south of the Permian, but we don’t know if there is gas there. We need to open Chihuahua and do studies there. We have to find the resources for the first phase of natural gas development.
“At the start, we need to invest a lot in natural gas. The legal framework is there. And we need to reopen the bidding process if we want to fulfill these goals.”
The Wilson Center’s Duncan Wood agreed. He told the audience that the new government would probably soon see the need for fracking, and an increased role of the private sector, simply to achieve energy security.
“Energy security is a more achievable goal than energy sovereignty in Mexico, and for that to happen we need private sector participation,” Wood said. In natural gas, “if you want to get to the vast majority of Mexico’s reserves, you need fracking.
“I wonder if there is going to be some kind of work around where someone at the IMP [Mexican Institute of Petroleum] comes up with a slightly greener, safer way of fracking. A ‘Mexicanized’ form of fracking.”
Without any changes, given existing contracts, the CNH is projecting that Mexico will reach about 4.252 Bcf/d in 2024, when the six-year term of President Andrés Manuel López Obrador ends.
Wood said, however, that developing natural gas might be low on the list of priorities of the new government, given its other burdens, which include tasking Pemex with adding 1 million b/d of oil by 2024. Pemex also has been tasked with developing an additional refinery.
“It may just be a sexenio [six-year term] without significant development of natural gas fields,” Wood said. “It might not be possible to make progress on all their fronts. Natural gas might be one of them.”