Baker Institute studies possible shale-development ban in Mexico

Rice University’s Baker Institute researchers say limited water access and a lack of infrastructure are likely to stall shale gas development in Mexico regardless of whether Mexican President Andres Manuel Lopez Obrador implements his campaign promise to ban hydraulic fracturing.

Adrian Duhalt, Anna Mikulska, and Michael Maher outlined their research in an issue brief, "A Proposed Shale Ban in Mexico." They represent the Mexico Center and Center for Energy Studies at the Baker Institute.

"In the long run, a ban on shale even if it only stands for the 6 years of Lopez Obrador's presidency may have adverse consequences in the absence of an effective scheme to diversify Mexico’s gas supply sources,” the report said.

"This is because beyond retarding new production, a ban would shelve the establishment of regulatory and legal frameworks that could encourage shale development–for example, exploratory drilling, pipelines, and other infrastructure, and the creation of a local workforce and a base for equipment and supplies," the authors wrote. "A ban would also impede foreign and domestic investment and innovation,” which have helped develop US shale plays.

Mexico’s gas production has declined for nearly 10 years while gas consumption has grown. In 2018, 71% of the natural gas available in Mexico was imported. Mexico’s government wants to increase its gas production to limit its import dependency.

“The policy direction of Mexico’s president casts doubt on whether the proposed agenda can be realized," the researchers wrote. Meanwhile, ongoing energy reforms opened Mexico’s oil and gas resources to private investment and development by companies outside Mexico.

"Contradictory statements about whether shale development in Mexico should be banned and whether the country should postpone oil and gas auctions have raised a great deal of uncertainty,” Rice researchers said.

A ban on fracturing could mean Mexico would “deepen its dependency on imports,” they concluded. “And ironically, much of those imports will come from shale…. In addition, domestically available shale gas could provide cheaper feedstock for power generation, chemicals, including nitrogen fertilizers, or refining."

Meanwhile, Mexico’s import dependency could promote construction of US-Mexico pipelines, which would discourage Mexico’s own gas production to the benefit of US shale producers in the South Texas Eagle Ford and the Permian basin in Texas and New Mexico.