The Mexican Congress is expected to approve the secondary legislation related to the energy reforms before the end of summer. This legislation will detail the now approved Constitutional Reform on energy that opened the market to foreigners. While no exact date has been set, end of July seems reasonable. Once passed, these reforms will complete the opening of the tightly closed oil and electricity sectors. However, while they may be used to reverse the decline of domestic oil production, they are mainly beneficial for the development of domestic shale deposits.
The Ministry of Energy is keen on investing in developing Mexico’s shale resources, which it estimates will cost USD 100 billion (or USD 250 billion according to some resources) for the next ten years. Previously, the task was entrusted to national oil producer Pemex, but it only managed to invest USD 250 million in shale gas exploration. However, it will be a while before foreign companies can become involved as the reform process will take until the end of 2014 or the first quarter of next year to settle down. A phase of implementation is being discussed.
One of the shale formations Mexico has its eyes on is the “Mexican Eagle Ford” shale, the sixth largest in the world, now covered under the US-Mexico Transboundary Hydrocarbons Agreement (cross-border oil reserves). The shale is responsible for two thirds of the country’s shale gas resources, which is approximately 600 trillion cubic feet. In addition to Eagle Ford, Mexico has 13 billion barrels of recoverable oil resources, ranking it the 8th largest in the world.
While this is a huge opportunity, it does come with its fair share of challenges. Despite the reforms, the exploration process will not be easy as infrastructure needs ample work, especially in the northern part of Mexico. Another issue that shale extractors face is the large amount of water required to drill reserves. In Coahuila, where the largest untapped shale is located, the water supply is scarce, making the state the second driest. Even the water that does come to the state is mainly used to agriculture activities. However, an amend to Waters Law is in process to support Geothermal business. Will it help shale too?
Drug cartels are also a threat foreign investors are wary of, especially since they have always extorted and stolen from foreign investors. However, Mexican president Enrique Pena Nieto is continuously urging local governments and private enterprise to address security risks and fight the growth of cartels by improving education in local communities, especially those in the shale-rich communities of Coahuila and Tamaulipas.
To further discuss the shale resources Mexico has to offer foreign investors, a two day oil and gas event named the Mexico Shale Summit will be held in San Antonio, Texas in February 2015. During the event, Mexico will showcase the opportunities and challenges of its northern regions, giving valuable industry insight and establishing strategic relationships that help the country ensure the success of its future ventures while mitigating the risks frightening many foreign investors.
Shale in Mexico has created many expectations along with solar. Can Mexico convert this interest in direct foreign investment? What is your opinion?