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    A Proposed Shale Ban in Mexico [GGP]

Summary

Mexico’s natural gas industry is at a crossroad. While domestic production has been on a downhill trajectory for almost a decade now and consumption has expanded, the resulting gap has been covered by ever-increasing imports.

by: Adrian Duhalt, Anna Mikulska and Michael D. Maher - Baker Institute for Public Policy

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Complimentary, Global Gas Perspectives

A Proposed Shale Ban in Mexico [GGP]

INTRODUCTION

Mexico’s natural gas industry is at a crossroad. While domestic production has been on a downhill trajectory for almost a decade now and consumption has expanded, the resulting gap has been covered by ever-increasing imports. In 2018, 71% of the natural gas available locally was sourced abroad. As a result, Mexico’s new president, Andrés Manuel López Obrador (AMLO), sees boosting domestic natural gas production as the backbone of his policy agenda to limit Mexico’s import dependency and strengthen energy sovereignty. But while these goals are not controversial per se, the policy direction of Mexico’s president casts doubt on whether the proposed agenda can be realized.

Two main factors lend themselves very well to advancing Mexico’s strategy of increasing domestic natural gas production: 1) the large unconventional (shale) resources Mexico is estimated to hold; and 2) the ongoing comprehensive reform that opened Mexico’s oil and gas sector to private investment. However, contradictory statements about whether shale development in Mexico should be banned and whether the country should postpone oil and gas auctions have raised a great deal of uncertainty about the future of these two factors. This has made energy pundits wonder what would be an alternative route consistent with AMLO’s aim of energy sovereignty.

Most observers focus on the potential impact on Mexico’s production growth should oil and gas auctions be halted under AMLO’s presidency. The effects of a ban on shale development in Mexico have not been discussed as much. Our analysis leads us to posit that whether or not shale development is banned in Mexico, little will change in the near- to medium-term since above-the-ground factors such as limited access to water and a lack of infrastructure are likely to stall shale development. Nonetheless, in the long run, a ban on shale—even if it only stands for the six years of AMLO’s presidency—may have adverse consequences in the absence of an effective scheme to diversify Mexico’s gas supply sources. This is because beyond retarding new production, a ban would shelve the establishment of regulatory and legal frameworks that could encourage shale development—e.g., exploratory drilling, pipelines and other infrastructure, and the creation of a local workforce and a base for equipment and supplies. A ban would also impede foreign and domestic investment and innovation, which are both central to shale’s success in the United States.

DOWNLOAD the full Policy Brief, A Proposed Shale Ban in Mexico

Adrian Duhalt, Ph.D., Postdoctoral Fellow in Mexico Energy Studies, Anna Mikulska, Ph.D., Nonresident Fellow in Energy Studies ad Michael D. Maher, Ph.D., Senior Program Advisor, Center for Energy Studies at Rice University's Baker Institute for Public Policy


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