US EIA Projects Growing Mexican Gas Production
When the US Energy Information Administration (EIA) released its latest annual energy outlook on February 6 - with a glance at the entire North American continent and beyond - there was a little-noticed reference to Mexico’s natural gas future.
The report, Annual Energy Outlook 2018, garnered significant attention for predicting the US will become a net energy exporter by 2022, a state it hasn't achieved since 1953.
The EIA predicted, in its reference case, that energy production in the US will increase by 31% between 2017 and 2050, led by increased renewables production, a slight increase in oil production and a more significant increase in natural gas production.
Dry natural gas production, which has increased by 68% since 2005, is projected in the EIA’s reference case to increase by 6.9bn ft3/day this year, and to reach 83bn ft3/day by 2019. LNG exports, the EIA said, could reach 5.5bn ft3/day by 2019, while pipeline exports – mostly to Mexico – were expected to rise to more than 4bn ft3/day.
But it was the comments in the report on the long-term trajectory of those exports to Mexico that were interesting and largely overlooked.
“By the mid-2020s, Mexican domestic natural gas production begins to displace US [imports],” the EIA report said.
That runs counter to the trend of the last few years, as state-owned and cash-strapped Pemex has concentrated on higher margin oil production. As a result, domestic gas production has declined from 7.02bn ft3/day in 2009 to slightly over 5bn ft3/day today, while domestic demand has grown beyond 8bn ft3/day, with estimates it could rise to almost 12bn ft3/day by 2027, as the country’s industrial sector demand grows and there is a shift from bunker fuel to gas for power generation.
Mexico’s Secretariat of Energy (Sener) and its regulator, the National Hydrocarbon Commission (CNH), are trying to encourage more gas production, and the latest effort to that end will be a July 25 auction of 37 former Pemex onshore fields, most of them gas-prone.
While Pemex still retains ownership of key producing blocks, Sener and CNH have auctioned off large numbers of onshore and offshore blocks to private sector entrants.
Kathryn Dyl, operations research analyst for the Washington, D.C.-based EIA, explained the agency’s rationale in an email exchange with NGW.
She said the EIA’s long-term outlook, which includes a projection of US supply and demand through to 2050 and an international outlook that also extends to 2050, makes assumptions based on the success of Mexico’s energy reform process and the future development of unconventional gas resources in Mexico, which have barely been touched by Pemex.
“Our view is that Mexico’s domestic natural gas production will begin to rebound as energy reforms begin to take hold,” she wrote. “In addition, there are also shale gas resources, such as the Burgos Basin (where blocks will be available in the July 25 auction), which are not currently being developed but (which) have the potential to be highly productive, given what we’ve seen on the US side of the border (the Burgos is just south of the Eagle Ford play in Texas).”
She said the EIA assumes oil and gas production in Mexico “will result in production rebounding post-2020”.
However, she admitted that “how Mexico’s natural gas markets will look in the future is highly uncertain” and US gas exports could continue to increase, especially in a world of continued low natural gas prices.
Dyl said another factor is Mexico’s “renewable (power) generation targets” (with the goal of as much as 50% of its power coming from renewables).
She said the EIA will be producing a Natural Gas Markets Module document, which could be released in the next few months. It will contain more assumptions on natural gas production and exports in the US, while also dealing with Mexico’s gas demand and possible future domestic production.