Monday, August 19, 2013

The Mexicans are Coming!

I've been casually following the news that Mexico's state oil company Pemex will overhaul its bloated, declining self and enter the 21st century.  That will be interesting to watch.  I read this morning that as part of this reinvention, Pemex will create a new subsidiary to invest in U.S. projects focused on shale gas, shale oil and deep water.  In terms of shale investments, Pemex will act as an investor, not an operator, since the company has no experience in shale.

This is interesting on several levels.  First, Pemex would employ the Chinese model to pay to learn the shale game.  Unfortunately, they are several years behind the other national oil companies that have snapped up big JV deals in key shale plays.  The good news for Pemex is that it is looking to invest at a time when the prices to play have decreased significantly from when the Asian companies were cutting checks.  This could also provide a boon to the shale producers out there shopping JV deals.

The proposed reforms also call for significant upgrades to Mexico's oil and gas transportation infrastructure. Over the years, Pemex has become an ineffective steward of Mexico's natural resources, and the country has become a net gas importer.  Industrial users that would benefit from natural gas have limited access.  While Pemex has grand visions of exporting gas to Asia, it is best served by building modern transport infrastructure across Mexico to serve its domestic users.  And the best ready source of natural gas?  The U.S., of course.

It will take many years for Pemex to explore and produce new fields, but pipelines can be built relatively quickly and there is lots of gas pouring out of the Eagle Ford Shale, just across the border in Texas.  The U.S. already pipes gas to Mexico and there have been some recent capacity expansions.  If Mexico is able to upgrade its transport infrastructure and become a more substantial user, the U.S. gas industry should benefit, and without all the political hubbub that accompanies an LNG export facility.

No comments: