Mexico needs significant help from the private sector if it is to increase domestic natural gas production and reduce its import dependency on the United States, according to energy expert Emily Medina, a fellow at Washington DC-based Energy Policy Research Foundation.
Speaking during a webinar on Mexico natural gas organized by think tank Institute of the Americas, Medina said President Andrés Manuel López Obrador’s goals of reversing a decade of decline and increasing domestic natural gas production by around 50% by the end of his term in 2024 are unrealistic.
“The goals are unfeasible based on the current situation. There needs to be a lot more participation coming from the private sector. We need the capital and technology that comes with those investments.”
State oil firm Petróleos Mexicanos (Pemex) has set a natural gas production goal of 4.916 Bcf/d for 2024, from an expected average of 3.561 Bcf/d this year. Most analysis suggests large increases in production would be difficult given the prevailing conditions in Mexico.
In his first 10 months as president, López Obrador has halted oil and gas bid rounds along with farmout tenders for operating stakes in acreage held by Pemex. Instead, Pemex will allow private participation through integrated exploration and extraction services contracts, known by their Spanish initials as CSIEEs.
“Mexico has huge quantities of natural gas and oil,” Medina said. “I think it’s imperative for the government to take action on the prospective resource Mexico has, otherwise we run the risk of these becoming stranded assets. This administration has injected a lot of capital in Pemex. But I think this is not enough; there needs to be a more comprehensive approach and I think this administration should reconsider restarting the farmout process.”
As for the auctions being suspended, she said, “If we are going to increase production, we need to think about assigning those blocks as soon as possible.”
The country’s upstream regulator Comisión Nacional de Hidrocarburos (CNH) expects natural gas production from contracts awarded through the 2013 energy reform to reach 464 MMcf/d by 2021, more than double the 225 MMcf/d expected from the same contracts in 2019.
Without new tender rounds, the onus falls on Pemex to increase natural gas production. Pemex has allocated $1.04 billion of next year’s capital expenditures (capex) to the Ixachi natural gas field in Veracruz, making it the company’s third-largest upstream project in the country.
Pemex plans to drill 47 wells at Ixachi, where natural gas output is expected to peak in 2022 at 638.5 MMcf/d. Ixachi “has the necessary infrastructure” in place to get production quickly to demand centers, Medina said.
“Ixachi’s prospects are positive,” Medina said. “But it will depend on Pemex’s ability to carry out production on its own.”
As for whether Mexico will invest in its natural gas-rich unconventional fields and allow hydraulic fracturing (fracking), Medina said “it’s a matter of political will.”
“López Obrador has said fracking is bad for the environment and communities.” But “failure to develop those resources can also affect communities and have an effect on their economies.”
Natural gas imports into Mexico from the United States are forecast to reach about 6.74 Bcf/d in 2024, 25.5% more than 2017 levels of 5.37 Bcf/d, according to the CNH.
Medina said while the dependence on U.S. imports increases Mexico’s vulnerability to “indirect shocks like hurricanes or natural disasters,” there are several benefits, including affordable natural gas prices and a good product.
With the startup of the Sur de Texas-Tuxpan cross-border pipeline, “we are going to see more natural gas flows to the south, which will in turn positively affect pricing.
“Most power plants in the south are being fueled by diesel and fuel oil which not only is more expensive than natural gas but is more intensive in emissions which is contributing to climate change and needs to be addressed. The current trend is to diversify fuels in Mexico, which is a very positive sign.”