Mexico stuck in neutral
The resources are there and the reforms have opened the door to investors, but shale gas can't yet compete
Shale gas was once among the most highly-touted opportunities in Mexico's
energy reforms, with streams of reports predicting that shale specialists who cut their teeth in the US would make the short trip across the border and bring a shale bounty with them.
The potential is indisputable. The prolific and well-known Eagle Ford shale play spans the US-Mexico border and additional shale fields stretch down Mexico's Gulf Coast in the Burgos Basin. The
Energy Information Administration global shale survey ranked Mexico sixth among the world's shale-gas holders with 545 trillion cubic feet in potential resources. This is a potential bonanza, considering that one of the central aims of Mexico's energy reforms is to lift natural gas' role in the economy.
But as the difficult realities of turning that sizeable potential into reality have become clear, shale has been put on the backburner, with cash flowing instead to easier-to-get-to offshore and conventional onshore resources. Regulators had hoped to put unconventional acreage out to bidding in the first crop of auction rounds after the country's energy reforms threw open the doors to private investors. But the mooted unconventional round has been repeatedly delayed due to a lack of interest, though it's possible some shale acreage could hit the market in 2018. State-owned
Pemex hasn't had any success. After a disappointing first foray into shale back in 2011, the company has mostly abandoned its unconventional ambitions for now.
545 trillion cf—Mexico's potential shale-gas resource
Security is a challenge unique to Mexico. Much of the early shale drilling took place in the northeast of the country, near the US border, where narco gangs often target the oil industry. A US service company that drilled some of Pemex's early shale-gas wells described having to take extra security precautions to protect their workers and kit. People and equipment couldn't be moved around at night, and extra security was needed to protect the well site, all of which significantly raised costs.
Mexico also shares many of the other difficulties that have undercut shale elsewhere in the world. Its exploration contracts are geared towards the typical conventional project lifecycle, rather than shale. Water access in the arid northeast is a problem, and infrastructure will be difficult to develop. Mexico's services sector doesn't have the expertise to support a fracking industry, and US specialists have been more reluctant than the Mexican authorities might have hoped to move south across the border.
However, the biggest deterrent to shale-gas investment in Mexico has been the huge success across the border in the US. A flood of cheap US shale gas has landed in Mexico in recent years, torpedoing the economics of shale drilling. There's no way any early-stage shale-gas development can compete with supply piped in from the Permian at $2 per million cubic feet.
Shale-gas drilling may one day come to Mexico. But even with the sweeping energy reforms the barriers are too steep for shale gas today.
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