Shell in Mexico: bringing change to the energy sceneAugust 16, 2022
Alberto de la Fuente, president and general director of Shell Mexico, talks to The Energy Year about the private sector’s contribution to Mexico’s upstream and the company’s deployment of its deepwater expertise and cutting-edge technologies. In Mexico, Shell is active in the upstream offshore, as well as having business lines in LNG, fuel retail and lubricants.
What contribution has the private sector brought to upstream activities in Mexico?
The participation of the private sector is becoming increasingly important. Part of Pemex’s strategy has been to focus on shallow waters, on projects that have a quicker return. It certainly makes sense, especially in a context of high prices. What people are looking for is to accelerate production, and in this journey, private operators are also excelling and have recently hit the 100,000-bopd threshold. The opening up of the industry has without doubt been positive for the upstream sector.
A great majority of the licences granted in the bid rounds – more than 80% – were exploration projects, which of course entail a lot of uncertainty and risk. However, the government has not had to incur that risk, and the private sector has been the one investing. As a result of the new exploration, we are beginning to see reserves gradually increasing. Also, technology transfer has garnered positive results. All the information that we are creating in terms of exploration will stay within the Mexican State, for its benefit.
All these elements exemplify the important role the private sector has and will continue to have. Unfortunately, the bid round process did not continue and new rounds were not launched.
Given the risk in this industry, we need to have as many exploration projects as possible so that eventually some of them will hit a discovery that can be developed. By the end of next year, we will reach the end of the exploration periods stipulated in these licensing rounds. The four years will have passed in practically all cases, plus the nine months of exemption granted due to Covid. When we reach that stage, if there are no more rounds, there will be a natural pause.
What recent upstream projects have you engaged in?
The exploration activity in Mexico is enormous. Shell won nine licences in the latest deepwater round. We have carried out exploration works with a couple of wells in the deepwater Salina Basin (Chibu and Max) as well as three more in the deepwater Perdido Basin (Chimalli, Xochicalco and Xuyi). We are actively delivering on our exploration commitments.
We have also been involved in a partnership with CNOOC. In that case, they will be the operators in one more well in the Perdido area. We have even looked at other options, even beyond our own blocks.
At the moment, we are preparing for our next exploration campaign. There is an enormous amount of work that goes on before drilling including the technical process of preparing, gathering knowledge, deciding where to carry out the exploration, etc. In addition, the whole regulatory process takes nine months to a year. We are in that regulatory period right now, obtaining permits and preparing for the next campaign. We expect to start our exploration drilling campaign in H2, which will include the drilling of four new wells.
In Mexico’s exploration scene, in the last four years we have invested more than USD 1 billion. This shows our commitment to this country and we are only halfway down the path of what we want to do. Given the current environment, it can become more challenging to deliver our commitments on time. The industry in Mexico has been hit by hurdles like the changes in policy, the pandemic and our reduced ability to continue our operations safely, and now Russia’s invasion of Ukraine, which has shaken the global industry.
High oil prices do not necessarily benefit oil companies – costs go up, it becomes more difficult to carry out commitments and get equipment, and the market gets saturated. All this makes operating in a scenario like the one we are in more complicated. Despite this, we continue with the same commitment and enthusiasm as on day one.
Considering Shell’s focus on deepwater, what have been the biggest challenges faced?
Deepwater is certainly one of Shell’s specialities. We have been the leaders in this terrain in the Gulf of Mexico for the last 40 years. In Mexico, there are more than 20,000 square kilometres of exploration for deepwater projects. It is an area that requires a lot of technology and knowledge. In the case of Mexico, the proximity to our operations in the US means that we have a strong team in the area.
The biggest challenge for Mexico is simply the enormous uncertainty, because we have never been great explorers in deep waters as a country. Pemex obviously has some important projects, namely Trion in the Perdido area. The hurdle is to actually continue to make these discoveries and see these geological basins, to better understand how they move, or how the different systems operate. This challenge is based on the lack of information at these depths.
Another difficulty is the fact that the regulatory environment in Mexico is not mature; it is a system being built as we go. This means that the processes take longer, sometimes with new regulations being drafted in parallel with the needs that emerge. This is especially an issue for private actors. However, Mexico is, fortunately, not new to hydrocarbons, and has extensive experience and robust service companies. This makes things much easier. So, we are understanding Mexico better every day, in order to do things better. We put a lot of effort into having the right regulatory compliance and being 100% ready to avoid delays, which we have not encountered until now.
Tell us about the state-of-the-art techniques and technologies you are deploying in Mexico.
We have invested in batch drilling, as pioneers in Mexico. Traditionally, a company starts drilling, reaches the limit of where it wants to drill, and then moves to the next well. Batch drilling involves simultaneous drilling. We drill a well to a certain limit, then move to another well nearby, drill to a similar limit, and move back to the first well. There we do deeper drilling, which requires another rig to keep doing these deeper explorations. This technique allows us to be more efficient in terms of the number of days and costs required, and also improves safety. It involved a different approach with the regulator as they were not used to this. We have now opened doors for other explorers to do the same.
For deepwater drilling, we have used two state-of-the-art drilling ships: the Thalassa and La Muralla. The Thalassa we brought to Mexican waters under a long-term contract, while La Muralla is from local company Grupo R.
The advantage of being next to the US is that any new technology we have there is easily accessible for deployment on the Mexican side of the Gulf. It’s a continuous learning process, from both sides, and that allows us to make sure that in Mexico we use cutting-edge technologies. Lastly, we have also been looking at how we can reduce our carbon emissions when it comes to doing operations – all of this with the latest technology as well.
In what ways is Shell committed to reducing emissions and advancing greener energy solutions?
The energy transition gives us all an opportunity to become companies that offer energy solutions. We have a commitment to reduce our greenhouse gas emissions to net zero by 2050, and more specifically to Scope 1 and Scope 2 emissions. We are making important progress in these two areas but the bigger challenge lies in those related to Scope 3 – reducing our customers’ emissions to net zero. We have established more than 50 partnerships with companies that produce steel, cement, alloys and so on. We can offer energy solutions that allow them to reduce their emissions.
Even if we have a strong hydrocarbons business line, we are playing an increasingly important role on the renewables side, whether it be with wind, solar or even hydrogen. Although in Mexico this landscape has not reached the level of maturity seen in Europe or the US, it is only a matter of time. We are already having first conversations with customers in Mexico, and we are looking at how we can offer them these solutions. Hybrid solutions in particular are gaining traction – gas and solar ones for instance. The year 2050 is just around the corner, so we need to accelerate this transition.
Shell is putting more and more money into projects related to the energy transition. We are investing a lot in refuelling for example and this is seen in the more than 44,000 service station outlets we have globally, equipping them for electric cars. In Mexico we are still a bit behind in this matter. However, the fact that we are connected to the rest of the world allows us to see what is happening, and we are now determined to work with big energy consumers in the country so that, together, we can facilitate this energy transition.
What are your goals for the 2022-2023 period in Mexico?
The first objective is to conclude our exploration campaign. This refers to the commitments we made in 2018, when we decided to come and explore. The period stipulated was four years and it has been extended to almost five years. We want to do this in the most efficient and safest way possible. From here, we want to evaluate what we learned and how we achieved what we did. This is important in order to understand what the future holds. The second objective has to do with the more medium-term future, which will be the combination of the results of this campaign with an understanding of the energy policy of the next administration.
Another objective in Mexico is our downstream unit: service stations. We are now looking at ways to become more efficient operators. It is a good time to continue polishing our cost structure and to do things in a better way. We have been in Mexico for almost 70 years now, which means that our commitment to this country is undeniable, and involves a long-term vision.
Hence, we are trying to understand how we can continue to be agents of change, and further contribute to Mexico’s development by providing energy to consumers. We are determined to renew this commitment and look for new opportunities to invest in this country.