(Banco Bilbao Vizcaya Argentaria, S.A. is a multinational Spanish banking group. It was formed from a merger of Banco Bilbao Vizcaya and Argentaria in 1999, and is the second biggest bank in Spain.)
Mexico’s shale gas will certainly draw attention from drilling companies.
Mexico’s shale gas will certainly draw attention from drilling companies.
The portion of the Eagle Ford Shale formation that extends into Mexico is part of the Burgos basin, where technically recoverable shale gas is currently projected at 343tcft, two thirds of Mexico's technically recoverable shale gas resources.
Sabinas, Tampico, and Veracruz Basins account for most of the remaining reserves. Companies familiar and experienced with the Eagle Ford such as EOG Resources, Chesapeake, and ConocoPhillips, have comparative advantages and could lead Mexico’s shale gas transformation.
Oilfield service companies like Schlumberger, Baker-Hughes, Halliburton, and Weatherford International could bring the technology needed for hydraulic fracturing and horizontal drilling. Smaller companies that focus on well-services may benefit as well.
Notwithstanding these benefits, Mexico’s technically recoverable shale gas resources are far smaller than total resources because of geologic complexities and discontinuities of its onshore shale zone. As a result, some studies provide a more pessimistic outlook on the true potential of shale production.
Mexico will also need infrastructure to move oil and gas from unconventional fields. Pipelines, railroads, and vessels will be needed to move the hydrocarbons from the production centers to their final destinations. Around 80 percent of all the gas Mexico imports comes from the U.S. and 60 percent comes directly from pipelines in Texas.
Notwithstanding these benefits, Mexico’s technically recoverable shale gas resources are far smaller than total resources because of geologic complexities and discontinuities of its onshore shale zone. As a result, some studies provide a more pessimistic outlook on the true potential of shale production.
Mexico will also need infrastructure to move oil and gas from unconventional fields. Pipelines, railroads, and vessels will be needed to move the hydrocarbons from the production centers to their final destinations. Around 80 percent of all the gas Mexico imports comes from the U.S. and 60 percent comes directly from pipelines in Texas.
The demand for natural gas will continue to increase by over 5bcfd as Mexico is projected to add 28 gigawatts of new electric capacity by 2027. As production begins to ramp up, exports will play a significant role in Mexico’s new energy landscape as energy companies in the U.S. may find an opportunity to sell natural gas overseas through Mexican export terminals.
New pipeline projects being built across the Texas-Mexico border could double the amount of U.S. natural gas exports to 7bcfd, five times the maximum amount of natural gas that the Freeport LNG terminal will be allowed to export. In any case, the reform will encourage large investments in midstream infrastructure.
Macroeconomic and geopolitical benefits
Developing Mexico’s hydrocarbon riches will add production capacity to the region, strengthening the energy independence, security, and economic stability of North America. The liberalization of Mexico’s energy sector will also deepen the economic integration of the region.
Although Mexico’s energy sector was originally excluded from NAFTA, it is expected to be included in the Trans-Pacific Partnership Agreement, which facilitates trade and investments in the Pacific region. As a result, energy companies can leverage on the experience built by non-energy firms working across borders under the auspices of NAFTA.
Simply, Mexico’s energy reform strengthens North America’s position as one of the top oil and gas producers of the 21st century.
Spillover to Mexican households in the form of lower energy prices and more jobs will greatly benefit both Mexico and the U.S. According to the Mexican government, the reform could create 2.5 million jobs by 2025 while BBVA Research estimates that Mexico’s long-term GDP could increase by 1 percent to 1.5 percent as a result of the reform. More jobs in Mexico will also translate into higher demand for U.S. goods and services and further reduce incentives to immigrate to the U.S.
From a regional perspective, the benefits could also be significant considering the multiplier effect of energy investments.
Some studies suggest that in the U.S., one job created in the unconventional oil and gas industry supports four more indirect and induced jobs. This implies that opportunities for oil and gas companies will also translate in opportunities for other businesses in manufacturing, mining, and services, particularly those that are energy-intensive.
This could also boost government revenues. Lower energy prices will reduce the need for electricity subsidies. This will ease pressures on public finances which remain one if not Mexico’s largest economic weakness. New investments in the Mexican side of the Eagle Ford Shale could bring economic prosperity to that region.
The Eagle Ford Shale extends over Texas and the Mexican states of Tamaulipas, Nuevo Leon, and Coahuila. This region has a combined population of 38 million (slightly bigger than Canada) and a GDP of $1.5 trillion in 2012. Under conservative assumptions, foreign direct investment in the area could add an extra 1 percent GDP growth, which may expand at an average rate of 6 percent per year, implying that the region could generate around $1.2 trillion in economic activity during the next decade, an amount similar to Spain’s economy.
Faster economic growth in the border will narrow the socio-economic disparities between Texas’ border cities and big metro areas like Houston, Dallas, or Austin. If these border towns effectively seize the opportunity, the U.S.-Mexican border could see one of the most dramatic transformations in its history.
The upside for Mexican border towns could be even greater if economic prosperity allows them to eradicate the bad reputation created by drug-trafficking and other illegal activities.
If the increase in future energy demand falls below expectations, developing Mexican reserves would increase the supply of natural gas, putting further downward pressures on prices and profitability. In the oil segment, despite the advancements in seismic-imaging and deep-water drilling technology, some oil fields will not be profitable if prices experience a sharp decline. In fact, increased production in the Gulf and in other countries with vast reserves could result in unwanted oversupply, while growing reliance on non-fossil fuel and new technologies in the auto sector could significantly reduce the demand for hydrocarbons.
In both instances, the incentives to invest billions of dollars in deep-water fields will decline.
Forming reasonable expectations is crucial for private companies interested in Mexico’s energy industry. Mexico’s complex business environment highlights the need to continue improving the institutional framework, which in turn could enhance the potential of the energy reform.
Therefore, prudency should be favored over excessive enthusiasm. Even with the reform, the role of the Mexican state in the energy policy will remain significant. In addition, despite substantial improvements in transparency and accountability, the energy sector could still be vulnerable to political cycles.
Bottom Line
Mexico’s energy reform will offer abundant opportunities to U.S. and foreign companies across energy and non-energy industries. Mexico is expected to regain its position as one of the top producers of hydrocarbons in the world. This has positive implications for the U.S. as it strengthens macroeconomic stability and energy security in North America.
The multiplier effect of energy investments will give a boost to the Texas-Mexico border area, generating $1.2 trillion dollars in economic activity over the next 10 years. Last but not least, the success of the reform will depend on the quality of the implementation process.
4 comments:
The Burgos Basis oil play may be a flash in the pan. Compared to the Eagle Ford there is very little oil to be had down there. Throw in the corruption and danger and not many foreign oil companies are interested.
The drop in gas prices are making us happy as larks. But wait! The oil Càrtels are going to stick it up our derricks before we can blink an eye.
Long live Corporate corruption .
Excellent summation of what might happen.
Flash in the pan's negative comments are full of shit. This could be huge for Northern Mexico, and South Texas will benefit.
Post a Comment