From the San Antonio Express News

Oil companies operating in the Eagle Ford Shale and Permian Basin in Texas often flare natural gas, but are considered well positioned to sell that gas instead into Mexico. Mexico’s oil and gas industry hasn’t been able to keep pace with the demand for natural gas for electric generation.

Natural gas has been something of a stepchild in the 400-mile Eagle Ford Shale oil field, but it’s having a moment.

With Mexico’s natural gas production on the decline — even as Mexican demand for natural gas is surging — Texas companies operating in the southernmost part of the Eagle Ford near Laredo are drilling natural gas wells so they can sell the product across the border.

Since 2010, Webb County’s gas production has soared from around 100 million cubic feet per day of natural gas to around 2 billion cubic feet per day today. Eight drilling rigs are working in Webb County, up from about three this time last year.

Brandon Seale, president of Howard Energy Mexico, said it doesn’t make sense for Mexico to rush to drill its own shale gas, even though it has its vast reserves.

Seale spoke Wednesday at the second annual Mexico Gas Summit at the St. Anthony Hotel in San Antonio, on the first of a two-day conference delving into the details of Mexico’s energy reform.

“A big issue is the declining production in Mexico,” Seale said. “Realistically, it’s probably going to keep happening, and why not?”

He said the South Texas market is among the most prolific, liquid and cheapest gas markets in the world.

“There’s no reason that Mexico should be chasing natural gas with a drill bit when they can buy it at the border for a lot cheaper,” he said.

Bill Deupree, CEO of Escondido Resources, said it’s not hugely profitable, but it makes economic sense to drill for gas in the southern part of the Eagle Ford. Webb County has long been a big natural gas producer, mostly from formations like the Olmos and Escondido sandstones. The deeper Eagle Ford is a more recent target.

“I think you’re going to see a lot of things coming into Mexico from this part of the trend,” Deupree said. “We’ve been quietly drilling in the Eagle Ford.”

The first Eagle Ford wells in 2008 and 2009 were gas wells. Companies later abandoned gas en masse, and started chasing the more profitable crude oil and other liquids. In much of the Eagle Ford, natural gas has been burned off as an unwanted byproduct.

The shale formation extends across the border, too, and Mexico has its own shale reserves, which have been the subject of speculation as the country opens its oil and gas fields to outside investment for the first time since the 1930s. Mexico’s state oil company, Petróleos Mexicanos, or Pemex, controlled nearly every aspect of the nation’s oil production and distribution since 1938, but Mexican officials decided in 2013 to end the monopoly.

Thomas Tunstall, economic development research director with the University of Texas at San Antonio, who moderated a panel at the conference, asked participants about infrastructure for Mexican shale. Its prospective shale fields are in rural, remote areas where there’s been little oil and gas activity over the decades.

“A lot of people wonder what kind of timeline we’re looking at for pipelines and housing and roads and those kinds of issues” Tunstall said.

“It’s a difficult question. I would say 10 years,” said Héctor Moreira Rodríguez, a commissioner with Mexico’s National Hydrocarbons Commission. “To really open the areas is going to take time.”

Part of the infrastructure would include bringing in more services companies — the ones that supply equipment and do all the workaday tasks of the oil field — and training a workforce.

Mexico’s shale fields produce more gas than oil, and oil projects are more profitable right now and drawing most of the international investment dollars.

“I would love it if it would develop now, but I don’t see it,” Tunstall said.

Until Mexico can get through the years-long processing of increasing its own oil and gas production, imports will fill the gap.

Last year, Mexico imported 53 percent of the natural gas that it used, mostly from Texas, said Daniela Flores Ramirez, deputy general director of planning for natural gas and petrochemicals with Mexico’s Ministry of Energy.

Imported liquified natural gas is covering the gaps between what Mexico can bring into the country by pipeline from the U.S. or produce itself.

Flores said LNG imports are cost-competitive now and expected to get cheaper with time. For Mexico, the LNG acts as a backstop to prevent supply interruptions.

LNG import terminals also help Mexico solve another problem — natural gas storage.

“We have no storage,” Flores said. “The only real storage is LNG.”

The country is trying to build out its pipeline and storage infrastructure for all sorts of hydrocarbons.

In February, it held the first annual auction for import pipelines. There’s a need for more — what was auctioned in February can serve about 3 percent of the country’s demand, which is growing each year because of population growth and increasing demand from industry, Flores said.


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