Natural Gas Exports to Mexico Are On the Rise

Posted December 9, 2014 at 5:13pm

While pressure to expedite U.S. government approval of liquefied natural gas exports continues, capacity to send natural gas to Mexico just expanded.

Last week, Mexican President Enrique Peña Nieto celebrated the completion of a new pipeline system to bring Eagle Ford shale gas across the border near Rio Grande City, Texas, to Los Ramones, Mexico. He said the pipeline will increase import capacity from the U.S. by 45 percent.

The first phase of the Los Ramones system adds 2.1 billion cubic square feet of daily capacity, on par with some of the largest LNG export projects underway.

About 69 million cubic square feet of gas was exported by pipeline to Mexico in September, a rate that has doubled since 2010. The increase will continue, according to Shirley Neff, senior adviser at the Energy Department’s Energy Information Administration. “We expect to see more exports to Mexico and also to Canada,” she said.

The Los Ramones project is a main component of Mexico’s energy reformation, following a 2013 constitutional amendment to privatize the country’s oil and gas production.

“Everything is going to change in a big way,” said former Mexican Energy Secretary Jordy Herrera, speaking at an event at the Woodrow Wilson center last month.


Opening Doors

Beyond opening the doors for private companies to bring in more imports, the new laws have opened up investment to develop Mexico’s resources, which have seen declining production as major oil reserves in the south have become depleted.

“Mexico does not have a problem with resources,” Herrera said. “We have a problem with money.”

Geology knows no borders, and the same oil-bearing shale formations, or “plays,” that have brought such a boom in production in Texas extend south.

“Mexico for the first time is going to have money to develop those resources,” Herrera said, tapping into shale and other unconventional oil as well as deep and ultra-deep wells in the Gulf of Mexico.

But the country’s pipeline network is 15 percent the size of the system that crisscrosses Texas, which hampers development, he said. “If a company wants to go to Mexico and develop resources the problem is going to be infrastructure.”

Mexico expects to spend billions to expand a natural gas network that previously brought gas from southern fields north to Mexico City and Monterrey.

“We have to build a new system because the new areas of production are very far from the old areas,” Herrera said.

With development in the new unconventional areas as well as deep and ultra-deep wells in the Gulf, the country could double its gas production in the next decade, he said.

The change might mean reducing the nation’s reliance on costly fuel oil for electricity production and also might bring about the kind of job boom seen in Texas and North Dakota.

“It’s the last possibility for our country to get the right speed of growth for the economy,” Herrera said, to combat poverty and be an economic player in the region. “That’s the only way to fight against poverty.”

While shallow offshore reserves have become too expensive for development at current gas prices, the combination of oil, gas liquids and natural gas make shale reserves more attractive to production companies, he said.

But all the growth on both sides of the border will necessitate coordination and cooperation among the U.S., Canada and Mexico.

“If we don’t work this out together as NAFTA region, we could affect prices, so we could affect production,” Herrera said, a prospect that has been getting more attention as the U.S. growth in oil production has helped lower global oil prices.

If the United States continues to increase oil production, “our exports are going where?” he asked, leaving open the prospect of North American counties maintaining some reliance on imports and export rather than racing separately to expand their own resources.

“Maybe it’s better for some regions to use their neighbor region than develop their own possibilities,” he said.