I understand that many people will disagree with me on this article, but I ask that you please take a few minutes to read my thoughts and the data below before forming an opinion.
Fracking is one of those topics that brings an immediate reaction (often negative) from people. People reference news programs they saw, oftentimes many years ago, where someone tasted gas in their water, or where a community reported seeing its water table drop from nearby fracking activity.
Mexico is currently evaluating the prospect of initiating fracking in the country, with President Claudia Sheinbaum appointing a special commission to investigate if and how the country can do “sustainable fracking.” The results of this investigation are due next week, and so I thought I would do some digging into what the potential for Mexico could be. I reached out to Pablo Eisner, a former geologist who is now the COO of the Houston and Mexico City-based Mexico Petroleum Company. I recently met Pablo at the U.S.-Mexico Chamber of Commerce annual meeting in Washington, D.C., and was impressed by his presentation. The following are the highlights of our conversation.
1. Some facts and figures on fracking in the United States: Thanks largely to fracking, in 15 years the U.S. has gone from importing 30% of its energy needs to becoming energy independent, as well as the world’s largest energy exporter. The Permian Basin alone has created over 800,000 jobs and has produced over US $1 trillion in value.
2. Mexico has a super basin that is geologically very similar to the Permian Basin, called the Tampico-Misantla Basin. The hydrocarbons in place in the Permian are estimated to be 150 billion barrels. In Tampico-Misantla, the estimate is 140 billion barrels. So the two basins are very similar in potential. Currently, the Permian is producing 6 million-plus barrels of oil and 24 billion cubic feet of gas per day. Tampico is producing 60,000 barrels of oil per day and 150 million cubic feet of gas per day. In other words, Tampico is producing approximately 1% of the Permian. Let me repeat that again: Despite similar sizes and potential, the Permian Basin in Texas is producing 100 times more than the Tampico-Misantla Basin in Mexico. Thousands of horizontal-multifrac wells are being drilled each year in the Permian, while just 62 of these have been drilled in total in Tampico-Misantla.
3. Mexico currently imports nearly 75% of its gas from the Permian and the Eagle Ford areas in the United States — all of which is produced by fracking. As a result, Mexico has become exceptionally dependent on U.S. energy to continue to power its economy. That alone is a geopolitical risk, made worse by the fact that if and when the Permian producers slow production of oil, there will likely not be sufficient gas available for Mexico. If falling oil prices cause production to be reduced, Mexico would need to find alternative sources for its natural gas. That gas would likely be at a much higher price in the post-Strait of Hormuz closure world. Given the new geopolitical risks, the shift in priorities of the Western Hemisphere, and a much more difficult global oil and gas market, Mexico needs to mitigate its exposure to this new reality.
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4. Hydrocarbons in Mexico have a long and emotional history going back to the 1900s and the creation of Pemex in 1938, in which total control of exploration, production, refining and distribution was transferred to the federal government. Pemex has gone from being a net contributor to the Mexican economy to having faced inefficiency and rising debt. In the face of declining production, successive governments have implemented deep structural reforms and had to provide the company with financial assistance.
5. In 2015 under President Enrique Peña Nieto, Mexico opened the distribution of gasoline, which allowed for competitors to open gas stations throughout the country. This reduced the need for Pemex to invest in distribution, but did not help solve the debt load problem. Then, under the leadership of President Andrés Manuel López Obrador in 2019, Mexico began building a massive new refinery called Dos Bocas to reduce Mexico’s dependence on the United States for refining its own oil. The project has ultimately resulted in Mexico being able to refine more of its own oil. In spite of all this and with nearshoring coming back to North America, Mexico has had an increasing need for U.S. natural gas, which is used for electricity production and manufacturing.
6. President Sheinbaum recognizes the limitations to economic growth due to insufficient Mexican gas production and the risks of gas dependence on the United States. In April of this year, she commissioned a group of 30 scientists to evaluate if and how fracking can be done in a “sustainable manner” in Mexico (using biodegradable chemicals and water recycling systems). Given that these methods are already being used in the United States, it seems likely that the scientists will give a green light to fracking in Mexico next week when their report is due.
7. What will make fracking successful in Mexico is the type of contract that is ultimately used. Foreign fracking companies will invest and thrive under license contracts or production sharing agreements similar to what they are used to in the United States. In the U.S., the landowner gets 20%, taxes are 30%, and the remaining 50% goes to the fracking company. In Mexico, the numbers would be something like a 20% royalty to the government, 30% in taxes and 50% for the fracking company, as all costs related to drilling, completion, and production fall squarely on their shoulders. The good news: Both the licensing contract and production sharing agreements already exist in Mexico.
8. Previous presidents likely would not have been able to push this initiative through without serious pushback (as well as cynicism and lack of trust) from the Mexican population. Given Sheinbaum’s popularity, especially with lower- and middle-class Mexicans, she has an opportunity to sell it not only as something that reduces dependence on the United States — which is how she has framed it thus far — but also as a major accelerator to both Mexican economic growth and job creation. Mexico has an economic growth problem, Mexico has a jobs problem (especially with formal sector, high-paying jobs), and Mexico has a gas dependence problem. Fracking in Mexico can quickly and significantly help with all three of these problems.
9. Concerns will be rampant about water scarcity and water contamination issues. Over the past 15-plus years, the fracking industry has learned how to significantly manage, control and reduce these problems. The industry could not have grown so quickly if it had not. Thankfully, the area where the Tampico-Misantla Basin is located is not in a water-scarce area. It is important that the environmental frameworks are put in place to ensure that there is transparency and trust.
10. Fracking could have a big impact on Mexico in a very short period of time. According to Pablo, a similar impact of 6 million-plus barrels per day and 800,000 jobs created within 10 years in Mexico is very possible. More importantly, given much of the existing infrastructure already in place and lessons learned, significant production increases could happen as soon as next year.
Most of us would love to live in a world free of hydrocarbons, but that world is going to take decades yet to become a reality. For those of you who are completely against fracking, I would ask for your suggestions: How would you decrease the energy dependency of Mexico on the U.S., create hundreds of thousands of well-paid jobs, and contribute hundreds of billions of dollars to the Mexican economy? Please put your ideas in the comments and let’s have the discussion.
President Sheinbaum has a historic opportunity to quickly get Mexico on the path of increased energy security and with it, significantly increased employment and economic growth. Let’s hope she gives fracking the green light to move forward. This is a time where her science background, her desire to reduce corruption, and her high levels of popularity can help bring a step change to the country.
Travis Bembenek is the CEO of Mexico News Daily and has been living, working or playing in Mexico for nearly 30 years.
