BROWNSVILLE, RGV – Brownsville stands at the center of the Eagle Ford and Burgos Basin shale activity and could benefit hugely if Mexico decides to export surplus natural gas, says a Mexican energy expert.
Dr. George Baker, a policy analyst at Rice University and editor and publisher of Energia.com, spoke at an energy forum hosted by Congressman Filemon Vela at La Plaza on Wednesday.
The forum was titled “Positioning Deep South Texas to Take Full Advantage of the Energy Revolution.” Baker shared a panel with Congressman Gene Green, whose district includes the Port of Houston.
At one point during his presentation, Baker held up a map that showed Brownsville at the center of a shale formation that stretches from south central Texas to south Tamaulipas.
Baker was asked what would happen if Mexico’s oil industry reforms were successful and that country wanted to export natural gas. “At that point there should be a pipeline from the Burgos right to Brownsville, right to the one, two, or three LNG facilities, so that Mexico can export its tremendous amount of gas out through Brownsville,” Baker said. “In looking ahead at Mexico and the potential of Brownsville, okay, you are going to have an LNG port for Eagle Ford gas, but also you could have it for Burgos gas or Mexican gas when Mexico says, we want an export market.”
LNG stands for liquefied natural gas. The Port of Brownsville is keen to land one or more LNG facilities. Its director Eddie Campirano participated at the forum, saying he is working on a plan to deepen the port.
Congressman Vela’s program for the forum listed Dr. Baker as a scholar and expert at Rice University’s Baker Institute for Public Policy and publisher of Mexico Energy Intelligence, an industry and policy newsletter published in Houston. The newsletter is published by Baker & Associates, Energy Consultants, a management consultancy based in Houston.
Baker told the Guardian he had been interviewed that morning by a radio station in Madrid, Spain, about Pemex, Mexico’s government-run oil corporation. In his speech, Baker said he had been invited to speak at an energy forum in Tokyo, Japan. “They wanted to know about Mexican energy reform and they wanted to know if the Texas dynamic in shale could be exported to Mexico. “The eyes of Tokyo and the whole Pacific Basin are on the dynamic here and how big can it get. There is a global interest in South Texas,” Baker said.
Baker then referred to a report issued by the U.S. government in 2013 on shale formations around the world. He said the information is available for viewing on the U.S. Energy Information Administration website. When it comes to Mexico, Baker said, the report states that “technically recoverable shale resources are estimated at 545 TCF (trillion cubic feet), enough for a century or more of natural gas, and 13 billion barrels of shale oil are potentially larger than Mexico’s proven conventional reserves. That gives us in words the order of magnitude we are dealing with,” Baker said.
Baker pointed out that in February, 2012, the U.S. and Mexico signed a trans-boundary maritime treaty governing oil and production in the Gulf of Mexico. He said the U.S. has 200,000 to 300,000 barrels a day coming from the U.S. side. Mexico, on the other had has made three commercial discoveries in the last year but does not have any development plans. “One can imagine Brownsville becoming a logistics port for the supply and services going due east on the U.S.-Mexico maritime border to supply the cross-border oil and gas production,” Baker said.
Baker then spoke in depth about the energy industry reforms currently underway in Mexico. He said that since 1958, and even before then, Mexico has interlocked legislation with its Constitution to prevent commercialization of the oil and gas industry. “It prevented them from taking advantage of new commercial opportunities that did not exist in 1958 when they put the padlock on foreign companies operating in Mexico. So, the energy reform is breaking the padlock. Now they say, okay we have a Constitution that lays out principles, and a legislative framework that allows us to make decisions flexibly in response to new formations, new technologies.”
Baker pointed out that deep sea drilling and shale drilling did not exist in 1958. “They (the Mexican government) are saying ‘we want to go into the future with the flexibility to respond to new technologies, new opportunities, new business models, new markets.’ In that sense it is a very healthy, very long overdue; welcome reform to separate out the constitutional framework from the legislative framework.”
On April 30, the last day of Congress, Mexican legislators were given 500 pages of proposed energy industry reform legislation to read, Baker said. He said having reviewed the proposals, the legislators will vote on the legislation later this month. “They will pass the implementing legislation that will put in motion and build the institutions needed to make the energy reform work,” Baker said.
However, said Baker, there are challenges ahead. “Remember, we are talking about Mexico, not Germany. Right now the Mexican border is closed to U.S. gas marketers. Every molecule of gas that crosses the U.S.-Mexico border headed south is controlled under contract by Pemex or the CFE (Comisión Federal de Electricidad). That is a terrible disadvantage to Mexico and… it offers no commercial opportunities for U.S. gas marketers to have a business in Mexico.”
Baker then asked the audience a question. If Mexico does not have competition, how can it set a price for natural gas? There was silence from the audience. “There are no price signals. It is set by formula. That is no way to run a country and no way to run a gas business and now way to develop industry,” Baker said. “That is one of the challenges ahead that hopefully the new Congress can find a way to move, to make it possible for a price hub inside Mexico.”
During the question and answer segment of the forum, Baker said that it has only been since 2003 that the Mexican government and Pemex have seen a way to allow international operators to operate oil and gas fields in Mexico. But, Baker said, that is under a system of compensation that is very limited. “In 1958 the law was changed, improperly and unconstitutionally, according to me, to prohibit payment in kind or as a percentage of production. That meant you could no longer have production-sharing agreements. The new constitutional reform eliminates that law, eliminates that restriction so now you can imagine having production-sharing equipment, you could imagine having lease agreements, so a contractor or an oil company gets a lease on the Mexican side of the Gulf of Mexico. That is a very big change in Mexico,” Baker said.
Baker was asked what Pemex might look like in ten or 15 years. He said that in a presentation at Rice, he had said the future of Pemex is very clear. “It is Pemex 2.0 and Pemex 2.0 operates outside of Mexico. It becomes qualified to operate on the U.S. side of Mexico, the North Sea and West Africa. Pemex as a Mexico company does not cut it. It is purely a government agency. It is not taken seriously as a global oil leader. The future I hope for Pemex is that thanks to the reform, thanks to the restructuring, thanks to a new leadership vision, they can see themselves as an oil company that operates globally, not only in Mexico.”
Baker was also asked about security in Mexico and whether U.S. or multinational oil companies would feel safe operating in Mexico. Baker said that as someone who was brought up in San Diego and used to cross in Tijuana without fear he is very saddened by the current situation. Baker pointed out that oil companies have learned how to operate safely in places like Papua New Guinea, Nigeria, Ecuador and Peru. “We should not overestimate the security issue. At the same time it is a fact of life. It is a restriction,” he said.