The country looks forward to higher oil and gas production in the coming years, and shale gas could foster a renaissance
Mexico’s energy reform could lay the foundation a shale-gas renaissance similar to that in the US, something the country needs to provide feedstock for its petrochemical industry, the general director of Alpek said on 26 March.
“Mexico has undergone the most significant reforms since NAFTA 20 years ago,” said Jose Simancas, general director of Mexico-based polyethylene terephthalate (PET) producer Alpek. Simancas was speaking to the IHS Chemical World Petrochemical Conference.
Mexico makes big push to boost energy production
Copyright: Rex Features
The reforms would open Mexico energy reserves to private investors for the first time in more than 75 years. During that time, state producer Pemex was the only entity allowed to produce oil and natural gas in Mexico.
With the reforms, Simancas said that Mexican oil production could follow the same trajectory as that in Brazil and Colombia when those countries opened up their energy sectors.
3M BBL/DAY BY 2018
In fact, the Mexican government expects production to rise from the current 2.5m bbl/day to 3m bbl/day in 2018 and 3.5m bbl/day in 2025. Such an increase would reverse the decline in oil production that Mexico has suffered during the past decade.
The reforms, though, would go beyond increasing oil production.
Despite its substantial energy resources, Mexico has a large and persistent petrochemical trade deficit. That deficit has the potential of increasing further if Mexico’s per capita income continues to rise, Simancas said.
In general, energy and petrochemical consumption continues increasing as incomes rise in a developing country, he said. This trend will continue until incomes approach the levels in developed countries.
Mexico’s petrochemical industry is limited to the extent it can increase capacity and meet any rise in domestic demand. That is because the country is running out of ethane. Once the Ethylene XXI project is completed, Mexico will not have enough ethane for a new cracker. At best, Pemex could expand its existing ethylene plants by up to 300,000 tonnes/year.
That is why the energy reforms are so important, Simancas said. It could attract foreign money to increase natural gas production and fractionation in Mexico.
That, in turn, could provide Mexico’s petrochemical industry with the feedstock needed to expand capacity, he said. Shale gas could move Mexico’s cost position close to that of the US, one of the most competitive in the world.
“We are in a position to be successful,” Simancas said. “We just have to be patient.” Energy reform could provide Mexico with one more benefit. About 30% of the country’s natural gas demand is met through imports, primarily from the US. This deficit came about through a deliberate policy by Pemex. To increase profits, the company chose to invest in oil production at the expense of natural gas. This policy left Mexico’s natural gas fields undeveloped.
Pemex also did not adequately build enough pipelines for Mexico to import gas from the US. As a result, the country imports liquefied natural gas (LNG) at a substantial premium − even though it is next door the world’s largest producer of natural gas.