Photo credit: Oil Pump by C2C Balloon
Mexico, although it has what are potentially large amounts of shale gas and oil in its territory, isn’t producing nearly enough natural gas to meet the country’s growing demand for energy. The result is that for now and the foreseeable future, Mexico will be needing to import natural gas from the United States. While this might at first encourage companies to invest in American facilities and energy infrastructure projects north of the border, there are actually boundless opportunities to invest in Mexico’s energy sector as the Spanish-speaking north American country scrambles to provide energy for its expanding economy.
According to the U.S. Department of Energy, the amount of gas extracted from U.S. resources bound for Mexico will most likely double in the next year. There are several pipelines that will be constructed between the two neighbors and these are expected to transport an additional 3.5 billion cubic feet of natural gas per day by 2014. Last year, exports of natural gas from the U.S. to Mexico reached their highest levels in four decades, and there seems to be no sign that the level of exports will be slowing down.
According to the Energy Department’s Energy Information Administration, “Natural gas consumption is rising faster in Mexico than natural gas production, and as a result, Mexico is relying more on natural gas imports from the United States.” Although Mexico has traditionally relied solely upon the United States as a source of natural gas when its own resources were insufficient to meet demand, since 2006 Mexico has been looking for other overseas suppliers in a move to diversify its domestic energy sector.
As mentioned above, Mexico is sitting upon a tremendous amount of shale gas, and Pemex, the state oil monopoly, has reported that there are possibly 1 trillion cubic feet of natural gas – but production is idle. Presently, chances are that this resource will go undeveloped because private investors are not allowed to develop or implement projects dealing with the natural gas. However, Pemex has announced that given certain financial conditions, 24 shale gas wells may be drilled in the next eight or nine months.
So where do the investment opportunities exist for those who want to be profitably involved in Mexico’s energy sector? Are there any ways in which investors can benefit from Mexico’s natural gas crisis?
The good news is that while there might not be any opportunities in the natural gas extraction industry, there are ample opportunities in pipeline projects. In order to meet demand, several pipelines will need to be constructed for United-States/Mexico natural gas transport. Furthermore, the Mexican state power company Comisión Federal de Electricidad (CFE), who has recently awarded billion-dollar plus pipeline construction contracts to the Calgary-based pipeline giant TransCanada Corp., might be looking for more pipeline construction companies to help meet its energy needs.
Speaking of his company’s 25-year natural gas transportation contract with the CFE, TransCanada CEO and president Russ Girling stated: “Mexico’s government is engaged in a comprehensive plan to expand the nation’s electrical grid and generating capacity and much of that generation will be natural gas fired. This award is another example of TransCanada’s commitment to help develop Mexico’s energy infrastructure in a sustainable and cost-efficient manner.”
To summarize, if the government decides to break the monopoly Pemex currently enjoys in Mexico, there will be great opportunities for early investors in natural gas extraction. However, even if this monopoly continues on for years, profit can be made from Mexico’s natural gas shortage. Pipeline infrastructure will be necessary and the CFE will possibly be financing many more projects in the years to come.