Don’t look now, but Mexico is hoping that its recent energy reforms will turn the shale boom from a uniquely American phenomenon into a uniquely North American one. This summer, Mexico opened up onshore blocks of its Burgos basin region, just south of Texas.
To date, the country’s state-owned oil company Pemex has been unable to successfully start commercial production in the basin, in part due to geology but certainly also the result of the company’s lack of expertise in shale. Now that Mexico’s oil and gas reserves are being opened up to private (and foreign) companies, there’s an opportunity for firms with the personnel, the experience, the equipment, and the culture necessary to get the country’s shale production up off (or maybe more accurately out of) the ground.
Prior to Mexico’s market reforms, Pemex was in a tailspin. The company was running the Red Queen’s race, spending more money and hiring more personnel while seeing production fall precipitously as fields matured. President Enrique Peña Nieto pushed through unpopular reforms to open Mexico’s struggling oil and gas industry up to competition, and after some fits and starts he’s seen that effort rewarded: on one day in July, there was a “world-class” oil discovery in the Gulf of Mexico by a group of private companies, a major increase in the estimated potential of another offshore field, and the successful sale of 21 out of 24 other offshore blocks on auction. In other words, there’s a lot of momentum building up in Mexico’s offshore hydrocarbon industry.
Onshore, progress has been slower, but Mexican shale—especially in the Burgos basin—looks to be a winner. America’s own highly productive Eagle Ford shale formation is part of that same basin, so there are hopes that Mexico might be able to replicate that success in their own shale fields.
But a burgeoning Burgos is only going to happen with private investment. As the U.S. Energy Information Administration (EIA) reports, Pemex is going to spend 91 percent less in Burgos this year than it did in 2012 “[in] response to decreasing natural gas prices over the past five years and energy reforms introduced in 2014 that gave priority to oil development.” For drillers north of the border, this should be seen as an opportunity, and thanks to Mexico’s reforms, it’s one they’re finally able to pursue.
Low natural gas prices in the U.S. will make Burgos development more difficult. We’re rapidly building out gas pipeline networks across the Mexican border in order to send our surfeit of shale gas south, which could threaten the viability of these new ventures. But unlike so many other countries with significant shale holdings around the world, Mexico has many things in common with the United States: proven geology, a low population density, and as of this summer, access to a variety of companies that know how to frack.