(S&P, 16.Jul.2024) — Given the large amount of unconventional hydrocarbon resources found in Mexico and how much fracking technology has advanced, the country cannot afford to neglect their exploitation without a serious debate, experts said at an energy forum held at the Mexican Senate.
According to data from the National Hydrocarbons Commission, or CNH, the Mexican upstream regulator, Mexico has roughly 113 billion barrels of oil equivalent in prospective resources, 57% in unconventional deposits. Most of those resources, however, have either never been assigned for exploration or have never even been included in any of the liberalization plans.
Under the administration of outgoing President Andres Manuel López Obrador, state oil and gas company Pemex was instructed to focus on shallow-water and onshore deposits to boost national production, abandoning the exploration in unconventional and deepwater deposits, which are riskier, take longer to mature and where Pemex does not have a successful track record. In particular, López Obrador specifically said the country would refrain from using fracking under his government.
But given the amount of unconventional resources that the country has, the new administration of Claudia Sheinbaum Pardo, who will take office in October, should make a thorough analysis of their potential, panelists said during the July 15 forum, which covered the oil and gas industry as well as the power sector.
“It is a mistake to refuse to debate about fracking when 57% of your reserves are in unconventional deposits,” said Enrique Silva Pérez, a partner at Procura Regulatory Consulting.
Mexico must set the ground for a new petroleum era for the country, one in which production is in decline, he said, noting that the country needs investment in technology.
“There are already many technologies for fracking that have been proven in the US and which we could adopt,” Silva Pérez said. The priority of the country should be to fuel its growth with its own resources, he added.
Fluvio Ruíz Alarcón, an independent analyst, agreed that a “serious” debate was needed about the use of fracking to tap the vast unconventional resources and pointed that Mexico’s dependency on foreign gas is larger than the dependency on foreign gasoline, which the Lopez Obrador administration has tried to curb by building a new refinery.
“If we consider that the little gas production from Pemex is mostly for their own consumption, the country’s dependency on foreign gas is above 90%,” Ruíz Alarcón said. For a few quarters in the current administration, Pemex was able to increase output, but that it did not last long, he added.
The challenges Mexico faces in terms of gas have mostly to do with a lack of investment and a lack of long-term planning, Ruíz Alarcón said. This lack of infrastructure has prevented Pemex from properly treating the gas and so a major portion of it is wasted, he added.
“At some point, the country burned as much as 13% of its production; now we are at around 6%, which is a reduction, but it is still three times the norm of 2%,” Ruíz Alarcón said.
The only way to have a successful gas industry is to have long-term planning and probably an independent subsidiary inside Pemex dedicated to gas, he said, adding that this subsidiary should be given financial incentives. Currently, the production of gas is treated under the same fiscal regime that applies to the crude industry, but the economics of both markets are very different, he noted.
Pemex pays 30% of its profits as a special royalty to the Mexican government, down from 65% at the beginning of the López Obrador administration, but the company continues to report financial losses.
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By Sheky Espejo
