Mexico energy reform could bring $1.2 trillion to border towns

HOUSTON — As Mexico moves to open its energy sector to international companies, the new investments and increased activity could mean a bonanza for  border towns on both sides, attracting as much as $1.2 trillion in economic activity to the region in the next decade, according to a BBVA Compass economist.

Investment in Mexican Eagle Ford Shale, increased pipeline development and improvements to the electric grid could help to transform border cities in Texas and Mexico, bringing millions of jobs and ancillary businesses, said BBVA Compass economist Marcial Nava in a webinar Tuesday.

The Birmingham, Ala.-based financial services firm, owned by Spanish bank BBVA, is one of the largest banks operating in Mexico and Texas.

2.5 million jobs

The Mexican energy reforms are a series of constitutional changes passed in December that ends the monopoly of Mexican oil company Pemex and opens all segments of the energy sector to private firms. Mexico’s congress currently is debating the supporting rules that will provide key information on how the new policy will be implemented and regulated.

Oil boom: North America to drown in oil as Mexico ends monopoly

But while the details are still forthcoming, the investment and new projects expected to flow from these reforms could create 2.5 million jobs in Mexico by 2025, according to BBVA, opening the door to residents who had not had these opportunities before, particularly in northern Mexico.

“More jobs in Mexico could potentially reduce illegal immigration,” Nava said, noting that a significant portion of the new jobs would be well-paid.

Mexico’s shale

The Mexican side of the Eagle Ford is to date largely unexplored. In 2012, the Mexican government only authorized the drilling of three shale oil and gas wells, a stark contrast to the 9,100 in the U.S. for the same time period, according to a report BBVA issued on Mexican energy reform opportunities.

The reforms will remove the limitations that prevented international investment from developing Mexican shale plays, especially in the Burgos Basin, which is the portion of the Eagle Ford Shale that extends into Mexico. This play could hold more than 300 trillion cubic feet of technically recoverable shale gas, while Mexico’s other shale plays — the Sabinas, Tampico and Veracruz Basins — are estimated to hold more than 1 trillion cubic feet of natural gas reserves.

Shale gas: Eagle Ford pipeline moves forward for delivery to Mexico

While shale plays in northern Mexico are complicated by water access issues, infrastructure limitations and security concerns, Nava suggests that the wealth of the resources could draw some big players, especially if the implementing legislation currently being drafted permits contracts with sufficient incentives for international companies.

“Companies familiar and experienced with the Eagle Ford such as EOG Resources, Chesapeake, and ConocoPhillips, have comparative advantages and could lead Mexico’s shale gas transformation,” Nava wrote in the BBVA report.

Importing gas

But while Mexico will be looking to increase its supply of natural gas, this could come through exploration or through increased pipeline infrastructure to the United States, Nava said.

“Even if the country continues to import natural gas, it needs the infrastructure for that natural gas and to lower the prices to households,” Nava said.

The United States is Mexico’s largest natural gas supplier, providing 80 percent of imports. More than 60 percent of the natural gas supplied comes from Texas through pipelines that link the Lone Star state with its southern neighbor, Nava said.


Also on FuelFix:

Rigs-to-Reefs program making a splash in Texas