Energy evolution: Data gathering ahead of Mexico’s Round One

Mexico

Shell Mexico president Alberto de la Fuente shares his outlook on Mexico’s Round One process and Mexico’s evolving energy market. Shell’s background as a deepwater operator in the US Gulf of Mexico makes it an important company to watch in 2015’s Round One tender. However, deepwater blocks do not represent the supermajor’s only interest.

What are Shell’s expectations for the implementation of the Round One tender?

The Energy Reform and subsequent bidding rounds represent a historical landmark for the Mexican oil and gas industry, as it is the first time newcomers have been invited to participate as oilfield operators in more than 75 years.

In recent years, the Mexican government has done an exceptional job of gathering technical feedback from the industry. Major efforts have also been put into organising an appropriate regulatory framework from which the hydrocarbons industry has benefitted greatly.

These efforts have consisted of the Secretary of Energy, the Energy Regulatory Commission and the National Hydrocarbon Commission collaborating to provide a transparent administrative and regulative structure for Round One tenders.

The co-operation between these three bodies will be fundamental for successful bidding rounds, although the government must work to ensure that this design does not result in bureaucratic bottlenecks.

What other aspects of the Round One tender present challenges?

Another aspect to be considered is the timing conditions set up for the shallow water tenders. Since the terms were first announced in December 2014, players have noticed the government’s appetite for quick developments in terms of exploration and production.

Operators must be prepared to deliver their business strategy for the following year only 45 days after being awarded the contract. A significant amount of information needs to be gathered prior to operating an oilfield. Therefore, this timeline poses major organisational challenges even for the most internationally experienced companies.

Given the time constraints, the efforts made by the government, such as providing geological data through the National Hydrocarbon Commission’s Data Room, are very much welcomed by international companies. While the geological studies are extraordinarily helpful, it is safe to assume that certain areas may require additional information in order to make the most informed decisions as possible. 

What developments do you expect in deepwater activities given Pemex’s lack of experience in this area?

The deepwater sector will likely be the one in which experienced international oil companies will play a crucial role in the growth of the Mexican oil and gas industry. The Perdido Fold Belt geological formation and areas shared by Mexico and the US in the northern Gulf of Mexico, retain much of the country’s deepwater potential.

Compared to shallow water fields, seismic information on the Mexican side of the Belt is very limited at the moment. Measuring around 40,000 square kilometres, the area has the potential to yield significant oil and gas reservoirs. International oil companies already operating in the US section can provide the necessary expertise to explore the area. Compared to other exploration and production projects, deepwater activities are both higher risk and more expensive.

Before operating a field there are several variables that must be considered: royalties, corporate taxes, operating environment, costs and non-technical risks. This might influence the terms shallow water bidding rounds to differ drastically from those of the deepwater bidding rounds.

How do you see Mexico benefiting from higher import volumes of natural gas from the US and Canada?

Mexico forms part of the North American Free Trade Agreement, giving the country an avenue for hydrocarbons trade. US natural gas production has witnessed tremendous growth over the last decade, turning the country into a natural gas exporter.

Mexico relies heavily on US natural gas, which accounts for 80 percent of the nation’s natural gas imports. Ongoing pipeline projects are expected to further increase the amount of natural gas imports from the US. One such project is the Los Ramones pipeline, which extends around 1,000 kilometres from the US-Mexico border to the state of Guanajuato.

How has US LNG production affected the way that hydrocarbons are imported into Mexico?

The LNG market has also changed dramatically in recent years as a direct result of US natural gas production. Although US-piped natural gas is gaining ground, LNG terminals have continued to play a crucial role in providing natural gas for the Mexican market.

Shell’s LNG terminals in Altamira and Tamaulipas have allowed the country to diversify how hydrocarbons are imported. In the past, Mexico the demand for imported natural gas was greater than the country’s pipeline infrastructure could support. As a result, in 2013, imports of LNG by truck amounted to around one-third of the country’s natural gas imports from the US.

Towards 2020, we expect LNG terminals to continue playing an important role in the growth of the Mexican natural gas market.

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