Collaboration Key to Meet Gas Demand: Rystad Energy

Q: What are the main challenges faced by oil and gas companies today and how should they tackle them?

A: Despite its more than 100 years of history, upstream oil and gas still has a great deal of untapped potential in Mexico, for both onshore and deepwater activities. An example of a Latin American country that has benefited from cooperation with the IOC’s is Brazil, where Petrobras had a monopoly in the oil and gas industry many years ago, and then opened up to the wider market. Now, the company leads E&P efforts in Brazil with international partners, benefiting from the knowledge transfer.

Cooperation also opens up new routes to capital. The way to tackle the issues that private E&P companies are facing in Mexico will be through a mixture of patience and pragmatism. There are several pragmatic ways to work with and alongside PEMEX but patience is required to understand that the current administration is still learning and understanding what the oil business could and should be in Mexico going forward. Hopefully, the administrations that follow will accelerate their learning when compared to this administration. Increasing the understanding and knowledge of how the international oil industry works and how a diversification of operators and players in the sector can serve the same purpose will allow PEMEX to be the driving force that it strives to be.

Q: How can Mexico develop its unconventional resources?

A: Mexico is in a very unique situation. It is dependent on a single supplier for the majority of its natural gas, the US, both for piped gas and LNG. Almost 85-90 percent of Mexico’s demand is met by the US. That creates an issue when it comes to security of supply, or energy security as it’s called today. If the US, for some reason, is unable to fulfill those contracts and send gas to Mexico either via pipeline or LNG cargos, Mexico would find itself in a very precarious position.

The crisis in Ukraine has taught us that energy security is paramount. The government should recognize that Mexico’s overdependence on the US needs to be mitigated somehow and one of the best ways is through the development of shale resources in Mexico. The issue with shale development in Mexico is twofold, however. First, there has not been enough shale exploration activity to understand how viable production is. The second is the above-ground political debate. The problem is that in Mexico, all underground resources are owned by the state, while in the US most of these resources are owned by private citizens or companies. In Mexico, this means that the government must get the community involved.

Gas demand in Mexico is set to grow, driven by power generation and industrial needs. Over 60 percent of the country’s electricity is generated by natural gas and the majority of it is imported. Even considering efficiency gains in gas power plants and ambitious growth in wind and solar capacity installation, gas demand is set to grow by 353Bcf/y, which cannot be met through conventional resources alone. Companies would have to drill shale in a really significant way to even offset the legacy production decline. Even with a hundred shale gas wells drilled per year and productivity remaining competitive, Mexico would still need incremental pipeline imports to meet demand. Yet, shale development would take the country one step closer to ameliorating its dependence on the US.