New shale discoveries could double Mexico's natural gas production, enabling it to transform itself from net importer to exporter. But how quickly those reserves are tapped will depend on how effectively a new administration, set to take office December 1, implements reforms to Mexico's energy sector, Mexican oil minister Jordy Herrera said Tuesday.
Herrera said in an interview on the sidelines of the World Energy Forum in Dubai that Mexico would need to invest more than $10 billion annually for the next 10 years to tap into its shale resources that could double the country's 6 Bcf/d production.
State-owned energy firm Pemex, which operates as a monopoly in Mexico, cannot afford that investment on its own, so the new administration will need to decide whether to open up Mexico's energy sector to outside investment and competition or allow some kind of public-private partnership with Pemex.
"We have to make big reforms for fiscal purposes," Herrera said. "In terms of developing the new fields in the Gulf of Mexico or the new fields for unconventional, I think there's going to be a big opportunity with a lot of investment. If that is going to be developed through Pemex, we're going to need a lot of public money that we don't have. It will depend on the kind of reform that the new administration is going to send out to Congress."
President-elect Enrique Pena Nieto of the Institutional Revolutionary Party (PRI) is scheduled to take office December 1. Pena Nieto has promised reforms that would allow the private sector to explore and produce oil -- the Mexican constitution currently bans such outside investments -- but his PRI will not have a majority in the next Congress, which also will be in place December 1. President Felipe Calderon of the Partido Accion Nacional (PAN), however, has voiced support for Pena Nieto's energy reform proposals.
While the shale gas revolution is already booming north of the border -- Texas alone has nearly 6,000 fracking wells in operation, for instance -- Mexico, which has just 12, is making its first tentative steps to study and analyze what resources it has.
With US gas cheap due to the American supply glut, Mexico's imports have soared, tamping down investment interest in developing Mexican resources. Mexico imports some 1.5 Bcf/d of US gas.
But Herrera, who was Director General of Pemex Gas and Basic Petrochemicals before joining the Calderon administration, said Mexico's growing economy would make investing in its domestic resources attractive from an energy security standpoint, though he estimated that gas prices would need to rebound to around $5/Tcf before shale gas development would make economic sense.
"Our economy has to grow a lot," he said. "We're going to need those resources for our own purposes. The restrictions [on development] will be related with [the availability of] public money, not with the industry itself."
Herrera said the country is spending $500 million to gather geological information on its shale deposits. These are mainly in the Eagle Ford formation that stretches from Texas into Mexico's northern region, where security amid drug smuggling and other problems is a general concern.
"Like in the United States, we knew about shale gas, but we never spent the right amount of money to determine where's the biggest potential with liquids that are needed to make that industry positive in terms of economic return," he said. "Pemex is starting to drill some of the first wells in the north area of the country, but we have to make a lot more than that."
