NGI The Weekly Gas Market Report
The natural gas potential in the Burgos Basin of NortheasternMexico, similar to geology to the Texas Gulf Coast region, may bethree to 10 times higher than previously estimated, according to acomprehensive new study by the Gas Technology Institute. GTI foundthat previous estimates, which put the total undiscovered resourceat 9.7 Tcf, might actually be between 21 Tcf and 75 Tcf.
The previous estimates by U.S. and Mexican authorities werelower for a few reasons, said GTI’s John Cochener, who was incharge of the study as project manager and principal analyst forresource evaluation. Government estimates are usually conservative,he said, and Mexico revised its oil and gas reserve accountingsystem 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 itdifficult to assess the potential. From all indications, asproduction develops, the reserve potential is higher there thananyone had estimated. With only 10,000 acres now being developed,and the full scope of the basin not realized, “It’s a lot morefertile than we thought,” said Cochener.
In separate estimates of the basin’s potential, Mexico’sstate-owned energy company Petroleos Mexicanos, or PEMEX, putreserve appreciation potential at 4.2 Tcf, while the U.S.Geological Survey put it at 5.5 Tcf for new field potential, with atotal for the basin of 9.7 Tcf. “These estimates now appear to beconservative,” said Cochener.
The Burgos Basin is an extension of the Texas Gulf Coastprovince, geologically speaking, with similar land formations,producing formations and expected ultimate yield. In the past fewyears, the basin’s gas production has “increased more thanfour-fold. PEMEX has been successful in increasing production fromthe basin, and now appears on track for more increases in thefuture,” Cochener said.
“Mother Nature in her geological distribution did not recognizethe border that separates the United States and Mexico,” saidCochener. “Burgos has the underlying potential to replicate theprolific adjacent Texas District IV historical production growthpatterns that emerged 70 years ago.”
Cochener said “the best part” for gas supplies is that thebasin, as it is developed, will have access to today’s bettertechnology, guaranteeing that its reserves are fully tapped. Itsmirror area in Texas, Texas District IV, which covers 17,200 squaremiles produced 3,625 MMcf/d in 1998, he said. Currently, the BurgosBasin is producing 970 MMcf/d in a smaller area.
Non-associated gas production in the basin should increase, saidthe study, “reaching a level of 2.3 Bcf/d by 2015.” GTI noted that”the future impact on Mexico’s overall natural gas production willbe dependent on the success of PEMEX projects in the Burgos Basinand continued access to outside capital and technology.”
GTI also found in its study that the drilling success rates forBurgos in development wells were “almost 100%,” and exploratorywells were nearly 50% “very high compared to the U.S.,” reflectedby the “lower-risk nature” of the wells. GTI noted that the “lowlevel of exploration implies that the entire region remainsunder-explored.”
Drilling activity in Mexico has historically been low, averagingless 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. Thebasis of the limited success in developing gas prospects in Mexicois more a function of limited capital investment than a limitedresource.”
If GTI’s study proves accurate, the news would come at the righttime for Mexico, which has been increasingly burdened with energyproblems and high natural gas prices in recent months. Although itremains plagued by a lack of investment, if new natural gas productiondoes not come on-stream in Mexico in the next two to three years, thecountry will have to import more than half of its gas needs, accordingto report issued late last year by Mexico’s energy regulator ComisionReguladora de Energia (see Daily GPI, Dec. 1, 2000). The country now importsabout 7% of its gas, mostly from South Texas.
Mexican officials predict that natural gas demand will growannually at a rate of 9% in the next 10 years, requiring aninvestment of US$2 billion per year to finance exploration andproduction programs, and add storage and distribution facilities.Despite its large known gas reserves, Mexico is a net importer ofnatural 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 thedifference in the figures is that GTI expects the recent growthrates 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 pipelineimport and export flows, said Cochener, which won’t even out for atleast four more years. He said that the “supply and demandprojection for Mexico indicates that the country’s demand for netimports will increase from less than 150 MMcf/d in recent years toapproximately 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 mayalso email GTI at email@example.com.
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