Crude Exports, Gas Imports Possible Development Path for Mexico

01 December 2019
Veronica Irastorza and John B. McNeece III

In an article published in the December 2019 issue of the Oil & Gas Journal, NERA Associate Director Veronica Irastorza and John B. McNeece III, a Senior Fellow at the Center for US-Mexican Studies at UC San Diego, conclude that Mexico could reasonably rely on imports of natural gas from the US while it works on expanding its domestic production. In addition, Mexico could choose to focus its efforts on increased production of crude oil, which garners high prices in world markets, while relying on the US for most of its natural gas, which has substantially lower prices for the same energy content.

Ms. Irastorza and Mr. McNeece review Mexico’s National Development Plan for 2019–2024, the proposed role Pemex would have in exploring and developing natural gas for domestic consumption, and US-to-Mexico gas import projections from Mexico’s Secretaría de Energía (SENER) and the US Information Administration (EIA). Whereas the development plan contemplates increasing natural gas production to meet 100% of consumption by 2024, the budget for Pemex to explore and develop domestic natural gas resources suggests that Mexico will continue to rely on imports. To match the exploration and development budgets of international oil and gas companies with comparable production goals, the Mexican government would need to forgo Pemex’s profit-sharing tax and increase taxes on other economic actors. This is not likely to occur. 

Based on their analysis, the authors consider that the risks Mexico assumes by counting on the US for a substantial portion of its natural gas needs are manageable. Complementing an effort to increase production, Mexico could seek to reduce consumption (e.g., through a transition to clean energy, since more than half of natural gas use in Mexico is for electricity generation).