Mexico Explores Boosting Fracking to Cut Reliance on U.S. Natural Gas

Mexico is considering expanding domestic fracking in a bid to reduce its high dependence on natural gas imports from the United States amid tense trade and tariff relations, the Financial Times reported on Tuesday, quoting private sector executives.

Over the past decade, Mexican imports of U.S. natural gas, mostly via pipelines, have jumped thanks to new pipelines built between the U.S. and Mexico.

Gas is the primary source of power generation in Mexico, accounting for 60% of all electricity output. But more than 70% of Mexico’s natural gas consumption is imported from the U.S., according to Mexican government data.

The reliance on U.S. pipeline gas is set to rise further, as pipeline connections expand but Mexican production declines, Fitch Ratings said in February.

“U.S. gas imports provide a reliable, cost-effective source of energy for Mexico, but exposes the country to exchange-rate volatility and supply disruptions amid increasing uncertainties over bilateral trade relations,” the rating agency said, before the U.S. slapped tariffs on Mexico and Canada in March.

In view of reducing Mexico’s reliance on an unpredictable U.S. president, the Mexican government is talking to the private sector to expand the very limited shale gas production, executives familiar with the discussions have told FT.

Discussions with private companies are in early stages and may not lead to any policy shifts or contracts, according to FT’s sources.

The leftwing party of Mexico’s President Claudia Sheinbaum has been opposing the expansion of fracking for years, but the U.S. trade policy could push it to reconsider the expansion of shale gas development.

In the late 2010s, then-President Enrique Peña Nieto sought to open shale basins, including the Burgos Basin, a shale-rich basin in northeastern Mexico, for natural gas exploration and development by private companies.

However, Peña Nieto’s successor, Andrés Manuel López Obrador, cancelled the contracts.

Now, Sheinbaum, López Obrador’s mentee and current president, is seeking to boost Mexico’s energy independence and security of supply in view of the trade policies of U.S. President Donald Trump.

Mexico has an estimated 545 Tcf of technically recoverable shale gas resources, the sixth largest in the world, per U.S. government data.

By Tsvetana Paraskova for Oilprice.com