APLA ’13: Weak reforms hurt Mexico’s shale gas future – consultant

CARTAGENA, Colombia (ICIS)–Mexico has “tremendous potential” to produce shale gas but current proposed government energy reforms may be insufficient to effect drastic changes that are needed, one consultant said on Friday.

“Mexico is the fourth largest owner of shale oil and gas reserves in the world – there is tremendous potential,” said Roberto Guzman, general manager of Mexico-based Pipa Consulting.

“[State oil company] Pemex is not ready to extract shale gas by itself as it has become technologically outdated and has the burden of paying one-third of the taxes in Mexico,” he added.

Guzman spoke at the 2013 Polyolefins Consulting Seminar organised by the PetroChemical Consulting Alliance in Cartagena ahead of the Latin American petrochemical and chemical association (APLA) meeting.

While Pemex produces 2.56m bbl/day of oil and 8 billion cubic feet (bcf)/day of natural gas, production has been declining for years, noted the consultant.

“Mexico is literally running out of gas. Exploration is increasing but production is declining. We need to change,” he said.

However, a dramatic change to hydrocarbon extraction will be extremely challenging because the government will find it politically difficult to raise taxes from the rest of the economy, the consultant noted.

“The proposed reform is insufficient,” said Guzman.

The proposed reform by the ruling PRI party calls for the use of profit-sharing contracts that will allow foreign oil and gas companies to explore and extract hydrocarbons, although the state would technically own all the reserves underground, the consultant noted.

“The question is: Will operators be interested?” he asked.

The PRI’s reform proposal would also likely have to be negotiated within an alliance with one or more political parties, as the PRI does not have a majority in either the body of representatives or the senate, with 41% and 42%, respectively, the consultant noted.

The government could initially offer relatively low profit-sharing levels, but these would likely have to be negotiated to attract private investment, Guzman said.

Private investment to tap deepwater and shale gas reserves in Mexico could treble oil production and boost natural gas production by 11 times, he said.

“This would enable the long-term competitiveness of the petrochemical and industrial sectors,” said Guzman.

Today, Mexico imports one-third of its natural gas consumption, one-third of its diesel, 49% of its gasoline, and 66% of its petrochemicals, the consultant noted.

While Mexico is open to private investment in secondary petroleum industries such as refining, petrochemical, storage and distribution facilities, the question for investors is: “What are the cost of my raw materials?,” said Guzman.

“For Mexico, the train is in the station, ready to go. Will we jump on the train, or remain on the platform watching it go?,” he said.

The APLA runs 16-19 November at Cartagena.