Editor’s Note: NGI’s Mexico Gas Price Index, a leader tracking Mexico natural gas market reform, is offering the following question-and-answer (Q&A) column as part of a regular interview series with experts in the Mexican natural gas market.
This 18th Q&A in the series is with Manuel Rodríguez González, President of the Energy Committee in the Mexican Chamber of Deputies. Rodríguez is a congressman from the oil patch state of Tabasco and member of the ruling Morena party, which took power following the election of President Andrés Manuel López Obrador last year. Rodríguez has headed the Congressional Energy Committee since August 2018 and will remain its president through August 2021.
A lawyer by trade, Rodríguez has also served as president of an environmental interest group known as Fundación Vital since 2014. Previously, he worked in the Tabasco state government offices, where he held a number of positions from 2002-2006, and later from 2009-2018.
Rodríguez holds master’s degrees from the Sorbonne University in Paris (Université Paris II Pantheon Assas) in Political Science and Constitutional Law and a bachelor’s degree from the Universidad Juárez Autónoma de Tabasco, where he studied law.
Rodríguez spoke with NGI from his office at the Mexican Chamber of Deputies in Mexico City.
NGI: In your opinion, what are the strengths of the Mexican natural gas market, and what are the weaknesses and areas that could improve?
Rodríguez: The strengths, according to studies that have been done by specialists, the Mexican government and National Hydrocarbons Commission (CNH), are that we have enormous potential and that from now until 2029, we could increase natural gas production to as much as 7 Bcf/d. That would be approximately 78% of the forecast consumption for Mexico in 2029, according to projections, which indicates the great potential that exists in the country.
The current situation is alarming, however, because currently we don’t have security in natural gas supply. In general terms, we don’t have energy security because we consume much more than we produce, which means we have to import natural gas and fuels. We import 88% of the natural gas that we consume, and around 90% of that amount is from the U.S., and largely from the Permian basin. It is very cheap natural gas and very useful, but, from an energy security standpoint, we depend on imports and we don’t have storage capacity. The natural gas storage capacity is just about a day and a half or two days, which puts us in a critical situation.
So, in terms of strengths, we have potential and the studies show it. And the challenge is to be able to overcome the current vulnerable situation that we’re in so that, in the mid-term, we can resolve these problems. According to the 2019-2024 national development plan, we are taking the right steps to accomplish energy security and sovereignty in many areas, including in natural gas.
NGI: You mentioned the natural gas potential that Mexico has in basins that are still undeveloped. What are your thoughts on the exploration and development of unconventional oil and natural gas resources through fracking and horizontal drilling techniques?
Rodríguez: Very good question. We have this potential that I mentioned, though the large part of that potential is located in unconventional fields. What does that mean? That means that, to be able to develop them and access those resources, we have to implement techniques that are currently controversial, such as fracking. There are many people that are in favor of fracking, and there are many people that are against it. Fracking requires hydraulic stimulation to be able to permeate rocks to be able to produce oil and gas.
What do I think should be done about it? I think, first off, there should be an ample national consultation in which everyone involved in the decision to frack or not should be heard. First off, the opinions of the specialists should be considered. They are the ones that will be able to explain and shed light on the exact science that is involved in fracking and if it is feasible to produce unconventional resources in a sustainable way that won’t have an environmental impact. There are people that insist that fracking will have an environmental impact. A series of very strict rules must be followed to assure that there wouldn’t be an environmental impact, particularly in terms of contamination to the underground water sources.
Also, the consultation process must hear out the voices in the communities. The rural communities. For that reason, the Mexican government and President Andrés Manuel López Obrador are emphasizing something that already exists, which is an analysis of the potential social impact. If you comply with the social consultation process in the law, it means that you went to the town, you spoke with the members of the community, you explained to them what the possible impacts would be, and that they agree to allow such a practice in the region where they live. Members of the communities need to be assured not only that there won’t be environmental damage, but that they will be part of the project and involved in the development so that it has a positive impact in the communities. They need to know that the project will benefit them and the development of the community in some way.
Given that there continues to be so many opposing voices against fracking, we have to do a deep study prior to making a determination. I am in favor of such a study because it is known that we have oil and natural gas in abundance, particularly in unconventional resources. A proper consultation must be done.
The technique has evolved over the last 20 years. If fracking follows very strict regulations, unconventional oil and gas can be developed without damage to the environment.
NGI: Speaking of social impact and community engagement, in the previous administration and in other instances in Mexico, there have been issues and conflicts between communities and companies that develop infrastructure projects in the country. Is the current administration doing anything in particular to mitigate those issues and possible conflicts?
Rodríguez: As I mentioned earlier, these rules already exist and the law requires there to be a social consultation prior to infrastructure projects being approved. The difference between now and then is that, previously, the consultation could be simulated without really taking all of the steps required to properly obtain the approval of the communities. Now, it is done correctly and, if the community agrees, the project moves forward. If the community doesn’t agree to the project, it’s simply not done. That benefits both parties: the community and the developer, which won’t invest money to develop a project that will be impeded or never completed. There are 2-3 cases of projects that haven’t been able to be completed because of community opposition.
So now, in this administration, these consultations must be done correctly. I think, that if done correctly following a deep consultation, the majority of these projects will be approved. If the people are better informed and have precise information -- and are included in the development of the projects -- there is likely to be far less resistance.
NGI: What is the function of the role of President of the Energy Committee in congress and how do you and other congressional members participate in the industry?
Rodríguez: My principal role as President of the Energy Committee is to direct the legislative and technical work that is needed regarding the energy industry. What does that mean? All the initiatives for new laws, or to reform or repeal existing laws, as well as make constitutional reforms in the energy industry -- once presented in congress – fall to me to oversee that they are analyzed extensively to arrive at a ruling. The ruling or judgment, which can be positive or negative, is then debated in the energy committee. In the case it is approved, we send it to the full congress, where it is discussed by all 500 congressmen and put up for vote. Depending on the result, if approved, it is sent on to the Senate. That is the legislative part of the job.
The other part is to be the voice of the citizens, the organizations, specialists, academics, and as well as business chambers and energy industry interest groups. This includes renewable energy groups, such as solar and wind, as well as the Mexican Association of Hydrocarbon Companies (AMEXHI), and oil and gas production companies, among others. We receive them here in congress, they present projects to us, and we are a link between them and the federal government to facilitate dialogue. That is one of our most important roles to assure that the relationship between the federal government and industry groups functions as well as possible.
We also support and encourage projects. Given the relationships we have with members of communities in regard to energy projects, we are in a position to detect any issues with regulation and work to smooth out any problems. This actually brings me to the energy reform, which I’d like to comment on.
The energy reform, currently, is solid. It will not be modified. Given the understanding that the value chain in the energy sector -- particularly in regard to hydrocarbons -- is planned for the mid and long-term, we have to give the energy reform time to mature. All the laws and rules can still be improved. Anything that we see that isn’t working or hasn’t worked can be tweaked. As President López Obrador has said, the energy industry is a driver of development for this country, and for that reason it is a strategic sector for this government.
NGI: One thing that the President and Manuel Bartlett, the CEO of CFE, has mentioned on a few occasions is that the energy reform won’t be modified or changed in the first three years of the current administration. Do you think that at some point, there will be changes or modifications to the energy reform?
Rodríguez: As I said a moment ago, the changes that are very likely to be made won’t be constitutional, but in the secondary laws. Why? Because all laws, after a few years, have to be updated, for various reasons. There are technological advances, the markets evolve, some things that were thought would work well didn’t work well and have to be improved, some things weren’t anticipated, or, in other cases, the bureaucratic process for permits and authorizations is very long and repetitive so they have to be simplified. I am sure those types of things will need to be done.
But, the fundamentals of the energy reform won’t be changed. Why? Because it is a reality that we need the collaboration between the government of Mexico and private companies in the energy industry.
NGI: Earlier you mentioned Mexico’s dependency on the U.S. for natural gas. What do you think Mexico can do to reduce that dependency on the U.S. and improve the import balance between the two countries?
Rodríguez: The national development plan forecasts that we can increase our production of natural gas and oil. In terms of natural gas, it is forecast that we can increase natural gas production from 3.5 Bcf/d currently to 5 Bcf/d by 2024. That will reduce the imports of gas. That won’t fulfill all the needs that we have, but it will make us somewhat less dependent on the U.S.
At the same time, we are working on the development of more natural gas storage options. This is to be able to guarantee better energy security.
Another thing, which we’ve spoken about, is the possible development of unconventional resources, which, if permitted, could provide better energy security for the country. This is why I think we need to carry out a study of the feasibility of unconventional development as soon as possible.
We have to of course be cautious and conscientious of the environment, while at the same time, not be hypocritical. As of today, we don’t develop unconventional fields, but we buy a large part of our natural gas from an unconventional field, the Permian. We don’t produce unconventional natural gas, but we consume it. We need to take off our masks where we say one thing but do another.
If we’re going to develop unconventional fields, we have to conduct serious studies. If we’re going to do it, the technology is available and it would need to be done in a responsible way. If we follow the appropriate steps and decide its feasible, we’ll do it. If we decide that we don’t want to do it and that it will contaminate, well, then we should consider that the natural gas we currently consume comes from an unconventional field. So, to be consistent, then maybe we should import natural gas from somewhere else, which then of course would be more expensive. A consensus decision is still yet to be made, though, when it is, it should be a uniform one.
NGI: If you were to describe the Mexican natural gas market in one word, what would it be and why?
Rodríguez: Growth. Mexico’s market is without question one experiencing clear growth. I think that rhythm will remain given the economic growth that natural gas generates in the country. Many states in the country benefit from natural gas projects and will continue to seek more of them to generate more growth.