Do You Believe in Magic - Can Mexico Spur Gas Production in Its Burgos Shale Play?

It may take a number of years to pan out, but Mexico is taking steps to accelerate the development of its natural gas-rich Burgos Shale region, which lies just across the Rio Grande from South Texas’s newly resurgent Eagle Ford play. Today (July 12, 2017), Mexico’s Secretaría de Energía (SENER) is expected to name the winners of a competitive bidding process for the rights to drill for natural gas within 1,500 square miles in the states of Nuevo Leon and Tamaulipas. If the effort to juice Burgos drilling activity and production proves successful, it could affect how much natural gas Mexico needs to import from the U.S. Today we discuss the prospects for reversing gas production declines south of the border and the challenges that exploration and production companies (E&Ps) face in Mexico’s most promising shale play.

In the past few years, exports of natural gas from the U.S. to Mexico have soared, driven by a combination of rising Mexican demand for gas (mostly to fuel a fast-growing fleet of new gas-fired combined-cycle power plants) and declining Mexican gas production. The statistics are eye-catching. In 2016, exports of U.S. natural gas to Mexico via pipeline averaged almost 3.8 billion cubic feet/day (Bcf/d), compared with only 913 million cubic feet/day (MMcf/d) in 2010, and in the first four months of 2017 pipeline-gas deliveries from the U.S. to Mexico averaged 4 Bcf/d. Mexico also has been the Numero Uno recipient of liquefied natural gas (LNG) shipped from Cheniere Energy’s Sabine Pass LNG facility since the southwestern Louisiana liquefaction plant and export terminal started up last year, receiving more than two dozen LNG cargoes to date.

That imported LNG is serving as a stopgap until new gas pipelines within Mexico come online. As we said in With a Permian Well, They Cried More, More, More – Part 2, our new Drill Down Report on gas production in the Permian Basin in West Texas and southeastern New Mexico (and pipeline takeaway capacity out of the Permian), Mexico’s Comisión Federal de Electricidad (CFE) is only in the middle stages of its plan to build new combined-cycle power plants in Mexico. CFE will also build new pipelines in the U.S. and in Mexico to deliver gas to these plants. Earlier this week, in Part 4 of It Was Good Living With You (W)aha — our series on the Waha gas hub in West Texas — we zeroed in on CFE’s brand new Waha header, with its 6 Bcf/d of capacity and multiple pipeline interconnects. Mexico clearly is planning on receiving a lot of Permian, Eagle Ford and other U.S. natural gas for years to come.

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