Mexico should speed up development of its natural gas reserves, including potentially massive shale deposits, to curb a growing “supply risk” fed by excessive dependence on U.S. supplies, the industry regulator proposed Sept. 20.
While the country has long been a major oil and gas producer, an extended output slump forced Mexico last year to turn to foreign supplies for 84% of its total natural gas demand, almost all of which came from the United States.
The commodity is increasingly used to fuel the country's growing manufacturing sector as well as its electricity needs.
“We need to diversify [sources of natural gas] because we are very concentrated,” Juan Carlos Zepeda, president of the National Hydrocarbons Commission (CNH), Mexico’s oil and gas regulator, said in an interview before announcing the proposals.
He pointed to shale gas resources estimated at more than 141 trillion cubic feet that should be developed.
“The priority of our national security related to natural gas does not allow the luxury of turning our back on this potential,” he said.
Mexico’s incoming president, however, has said he will not permit hydraulic fracking, the widely used technique to unlock oil and gas from dense shale rock that critics say harms underground water supplies.
“We will no longer use that method to extract petroleum,” President-elect Andres Manuel Lopez Obrador told reporters just weeks after winning a landslide election victory on July 1.
Set to become Mexico’s first leftist leader in decades in December, Lopez Obrador has said he will focus on strengthening state-owned Pemex.
So far this year, Pemex has produced an average of 4.83 billion cubic feet per day (Bcf/d) of natural gas, down by nearly a third compared to peak production of 7.03 Bcf/d in 2009.
“We’ll have to be convincing,” CNH Commissioner Hector Moreira said in an interview, noting that two-thirds of Mexico’s estimated natural gas supplies are in so-called non-conventional shale deposits.
He added that three main gas pipelines on the U.S.-Mexico border make imports vulnerable to disruption.
Both Zepeda and Moreira propose that oil and gas auctions continue under the incoming government, especially in gas-rich areas, and that new fiscal incentives be enacted that allow producers to immediately deduct drilling costs with no required royalty payments. They also pitch a new state-owned company focused exclusively on producing natural gas similar to Russia’s Gazprom.
U.S. oil drillers this week cut the most rigs since the week to Jan. 18 and reduced the number of oil rigs operating for a second week in a row.
U.S. crude oil production rose 231,000 barrels per day (bbl/d), or 2%, to a record 10.674 million barrels per day (MMbbl/d) in June, the U.S. Energy Information Administration said in a pair of monthly reports on Aug. 31.
Royal Dutch Shell (NYSE: RDS.A) and Gas Networks Ireland (GNI) are working to remove odorless gas that entered the network from the country’s Corrib gas field.