The Mexican Eagle Ford
The Eagle Ford Shale is considered the largest economic development in the history of Texas, with a USD 60 billion impact estimated for 2012 alone and over 115,000 jobs created in 20 nearby county areas. It is also ranked as the largest oil and gas development due to the USD 30 billion spent in developing the play in 2013. With a record-breaking rate of 4,000 barrels per day of oil, the Eagle Ford play has put South Texas on the map. However, whereas the lights can be seen from the surface-level gas flares and rigs in the area, the Mexican part of the shale is engulfed in darkness.
The Mexican share of the Eagle Ford Shale has hundreds of mile forming the Burgos Basin, and bear the opportunity of thousands of wells to boost the economy. While the American side has over 5,400 wells, Mexico has only attempted 25. It is expected a change from the secondary legislation that is under final discussion at Congress now.
The Effects of the Mexican Energy Reforms
Initiated by President Enrique Pena Nieto, the energy reforms will open the Mexican oil industry and private foreign investment sector after over seven decades. As a result, foreign investors are having a serious interest in the country, and could bring along new technology, expertise, and risk assessment tools that state oil monopoly Pemex has failed to introduce in its operations. Though lawmakers are currently working on the details of the reforms, U.S. oil and gas companies as well as others from across the world are optimistic about being able to bid on projects by the end of 2014 and initiating projects even in some of the country’s most violent areas in 2015.
If all goes as planned, Mexico can easily become a large net importer of oil in a few years. Pemex predicts that the formation holds approximately 60 billion barrels of oil, which is more than the volume the country has produced since 1904. Natural gas especially is expected to be plentiful; a 2013 survey by the U.S. Energy Information Administration showcased that Mexican shale gas reserves were the world’s sixth.
Unfortunately, despite the country’s rich resources, its demand for electricity and pipeline infrastructure has forced it to depend on imported gas. At certain parts of the country, the prices of natural gas can reach four times as high as those in the United States. Therefore, in addition to countering this issue, the shale’s resources have the power to help the country’s economic and energy development and ensure its self-sufficiency when it comes to its fuel needs.
Finally, due to the lower cost of gas, Mexico can generate energy for less, empowering its manufacturing and assembly plants and helping them compete with China. According to Javier Trevino (PRI), the Mexican Congress’ head to the energy commission, “This is critical to the re-industrialization of North America. Mexico needs to develop these resources, or else we’ll be left behind.”
How the Reforms will Benefit Eagle Ford Shale Producers
The American producers will get numerous opportunities to start tapping into the Mexican side of resources. With Congress currently taking the necessary steps towards creating laws which complement the reforms, numerous organizations have started applying to the Federal Energy Regulatory Commission (FERC) to build border-crossing pipelines from the U.S. side of the Ford Shale to Mexico.
Columbia Pipeline LLC has already filed an application to construct a pipeline from Texas to help with generating power in Mexico. The company, which is a San Antonio based unit of Howard Midstream Energy Partners, has been collecting gas and continuously working on the infrastructure which Eagle Ford producers depend on.
“Howard Energy’s gathering pipelines are connected, either directly or indirectly, to significant supplies of gas produced in Texas…The border crossing facilities will…meet the needs of the expanding electric generation and industrial markets in Mexico. As such, the border crossing facilities will expand the market for domestically produced gas…will further national economic policy by stimulating the flow of goods and services between the United States and Mexico, in the process improving our international balance of payments,” said the company’s official.
Also following in the same footsteps is Kinder Morgan Inc., which has proposed the Sierrita Pipeline and made plans to connect it with natural gas transmission channels towards northern Mexico. The pipeline will connect El Paso Natural Gas Co’s mainline at the interstate system in Arizona to a point near the international border at Sasabe. “Sierrita Pipeline will serve new demand for gas transportation by MGI Supply Ltd. delivering natural gas to the border crossing facilities and on to Mexico; Sierrita’s services will not replace any existing services by other pipelines,” FERC announced.
Issues Which Should Be Addressed First
There are a number of issues which Eagle Ford Shale producers will have to take into consideration before they can venture into the Mexican oil and gas market. The first of these is the less developed Mexican infrastructure. Pipelines, rail and roads need to be taken care of and improved to facilitate production and allow raw materials capital equipment to make its ways from South Texas.
Another problem which Ford Shale producers will need to take care of is the security factor. Due to the constant drug violence in Mexico, especially around the borders, oil and gas producers tend to hesitate about entering the Mexican energy sector. Luckily, President Enrique Pena Nieto has already been waging a drug war two months since he took office in 2013. “My government will continue mounting a real fight against the trafficking of marijuana and all other drugs.”
In addition, due to its proximity to Mexican shale oil and gas deposits, the United States will make the most of these resources. While many countries are interested in tapping into the reserves in Mexico, most of the expertise needed for this task will be from the United States. Therefore, the U.S. is bound to benefit more from the prospects for shale oil and gas exploration in Mexico since has a wide experience in fracking and exploring techniques. However, still some environment regulation is still in process to be decided.
The Bottom Line
Mexico’s oil reforms will open the country for international investors and oil and gas explorers, allowing them to take advantage of the rich reserves in different parts of the country, including the Eagle Ford Shale. Aside from the U.S. and Mexico, shale oil and gas exploration will take its toll on global markets. The shale’s businesses and producers will be able to tap into the shale boom, strengthening their position and establishing themselves beyond North America.