For integrated oil and gas companies, particularly NOCs, the choice between exploring for oil or gas is an easy choice to make. Since the global demand for gas has dropped, companies often prioritize oil exploration and production in order to maximize profitability. Pemex is no exception, and its levels of gas flaring (although currently improving) show that the company does not rank gas exploitation high on its list of current priorities. As Juan Carlos Zepeda Molina, President of Mexico’s oil and gas regulator CNH, points out, “Gas cannot compete with oil in terms of profitability.”

In an interview with New Energy Connections, Zepeda Molina shared an anecdote that revealed one possible solution for increasing gas production in Mexico, something particularly relevant since the EIA released its estimate of Mexico’s shale gas reserves, announcing the second largest reserves in Latin America at 681Tf3 (19.3Tm3). “I was at a conference some months ago, and spoke about the need for Pemex to create a separate subsidiary for gas because of the problem of competition with oil. I later spoke to a former employee from PdVSA, who spoke to me about the fact that Venezuela’s state oil company had encountered the same problem in the years before Chavez came to power, and had overcome the problem by creating a separate gas subsidiary. This is a hot topic now in Mexico, especially because of the enthusiasm today for developing shale gas reserves. Other NOCs around the world have also created separate gas subsidiaries, from Statoil who acquired a company primarily to develop shale gas reserves, to Qatar Gas, which is responsible only for the exploration and development of gas reserves and the production of LNG. There is international precedent for this, and I believe that now is the right moment for Pemex to be considering such a move.”

In terms of non-conventional reserves, coal bed methane (CBM) reserves will be open to private players but shale gas will remain the exclusive domain of Pemex. If the company is serious about capitalizing on these resources, it needs to make the environment economically viable for contractors. With the current focus on oil exploration, a new and independent subsidiary would mean more risk capital could be spent by the company on shale gas exploration, which would go a long way to making shale gas more attractive in Mexico for international contractors.

 

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