Commentary: Mexico enters shale play

While the energy world has been focused on Canadian shale over the past few years, Mexico has been quietly emerging as a major player in the crude oil and natural gas industry.

With the recent passage of massive energy reforms in Mexico, billions of barrels of oil and trillions of cubic feet of natural gas are now available for production in the Burgos Basin, otherwise known as the Eagle Ford Shale.

The reform ended PEMEX’s 75-year monopoly on oil and gas production in Mexico.  Over the past several decades, this monopoly had a stranglehold on the industry, with Mexican oil production hitting a 24-year low last year.  PEMEX originally formed out of nationalist fervor, and over the years became one of the government’s largest sources of income. Unfortunately, the organization became notoriously bureaucratic and corrupt, heralding the necessity for change.

President Enrique Pena Nieto and his supporters in the Mexican Congress realized a massive shake-up of the establishment would allow the country to enter into the 21st century of oil and gas production and distribution, taping the large resources found in the Eagle Ford shale.

Starting early next year, the government will auction off the majority of drilling and production rights across the country, with PEMEX retaining one-third of its current holdings, allowing many international and domestic firms the opportunity to develop production in the Gulf of Mexico.

While tapping the formation may bring economic benefits to the nation, political uncertainty remains with narco-gangs along the border. Foreign companies also run the risk with the possibility of re-nationalized production in the future, making investments in formation a big gamble.

As Mexico begins production for a diversified energy portfolio, we are reminded of our own need for continued energy independence, ensuring a more efficient and economical system of energy production and distribution for the future.