E&Ps Finding Room for Optimism in Mexico Natural Gas Sector
Private exploration and production (E&P) operators that have secured licenses to operate in Mexico are finding success, they said at the Mexico Gas Summit held virtually on Tuesday.
Jaguar E&P CEO Warren Levy said the company has drilled four successful wells this year and plans to drill more than 25 in 2021. Jaguar has the largest acreage position onshore of all private E&Ps in Mexico.
“There is undoubtedly a preference to buy local gas in Mexico,” Levy said. The company expects “world class discoveries” in the next year to 18 months. Jaguar is sitting on 13 Tcf of gas potential, and “1 Tcf can replace nine months of imports.”
Jaguar is second behind only state giant Petróleos Mexicanos (Pemex) in requesting permits from the Comisión Nacional de Hidrocarburos (CNH), Levy noted.
Tecpetrol México company head Ricardo Ferreiro said his company is “being creative” and “very lean” to compete with low natural gas prices. With the right planning, partners, focus and contract model, he said E&P companies can be successful in Mexico.
One problem is that although hydraulic fracturing (fracking) is technically legal, the government in Mexico City is against it. Most of the country’s natural gas resources are unconventional.
“You have the basins, the resources, the experience, but right now you need the green light,” Ferreiro said. “For sure production could pick up quickly.”
Mexico natural gas production in July was 3.855 Bcf/d, according to CNH, of which 227 MMcf/d, or about 6%, came from private E&Ps. Consultancy Talanza is forecasting private sector production to hit 8% in 2021 and 20% of total gas production in 2027.
‘Enough Gas For 100 Years’
“We depend on natural gas,” said CNH Commissioner Héctor Moreira Rodríguez. “If we are going to compete internationally, we need to have readily available gas.” He added that Mexico has 224 Tcf of prospective resources, “enough gas for 100 years.”
According to CNH, Mexico is projected to increase natural gas production by 50% in 2027, reaching a plateau of 5.5 Bcf/d, “but that’s not nearly enough,” Moreira said.
As it stands, Mexico’s gas demand exceeds 10 Bcf/d, with imports from the United States accounting for about 70% of the total when consumption by Pemex is excluded from the figure, according to CNH.
CNH is in charge of upstream permitting in Mexico along with providing a database of sector information. According to CNH, 58% of Mexican power generation is natural gas-fired, with natural gas accounting for most petrochemical output in the country.
“The world is changing its fuel use, and we are moving to a world of natural gas and renewables,” Moreira said.
President Rogelio Montemayor of the Energy Cluster of Coahuila, said investment in the energy sector could help Mexico out of the economic crisis caused by the coronavirus.
“We are facing a great paradox,” he said. “In terms of gas, there is no option to replace our gas imports. We face an enormous vulnerability there. We don’t have storage options. We are subject to an incident that could put us in a very vulnerable situation.
“On the other hand, there is an urgency to get new investments, due to the economic crisis,” he added. “And one of those sectors that could help Mexico get out of this rapidly is the energy sector.”
Montemayor said the current government’s cancellation of oil and gas rounds and farmouts, along with renewable energy auctions, limit the scope of new investment, but “I am confident that this will change because reality will make the government revise its policy.”
He said that new infrastructure is needed near the U.S. border in Coahuila and “we could develop a program to use the services on the other side of the border. We could be very competitive.”
Around 70% of higher upstream costs in Mexico lie in regulatory issues, Montemayor said, “which has a solution.” He said that the import of dry gas stripped of other components that could be used in petrochemicals also made imports less cost-effective than they seemed.
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