A South American story: part one

There is, by any measure, a lot of gas in South America. According to the US Energy Information Administration (EIA), Latin America (the South American continent and Mexico) had a total of 277 trillion ft³ of conventional gas reserves and produced slightly over 16.3 billion ft³/d in 2013.

But the impressive numbers belie underlying problems that make the successful production and petrochemical processing of natural gas in Latin America an especially challenging ordeal.

Mexico

Arguably, Mexico offers the most intriguing opportunities in all of Latin America. While the US and Canada raced ahead in developing both conventional and unconventional natural gas using the latest drilling and fracking technologies, Mexico’s oil and gas sector slumbered under a constitutional clause that restricted international participation. Under President Enrique Peña Nieto, however, federal reforms have been pushed through to end state-owned Pemex’s monopoly. In its place, oil firms will be allowed to participate in exploration and production, as well as direct private investment in midstream and downstream sectors.

Mexico has hydrocarbon riches galore. In addition to 10 billion bbls of proven crude reserves (and 2.4 million bpd of production) the country has over 17 trillion ft³ of proven gas reserves. It produces 4.4 billion ft3/d, half of which is associated with producing oilfields, and the rest with pure gas plays, and consumes 7 billion ft³/d (mostly through gas-fuelled electricity plants).

Investors are being offered leases on both existing fields and new exploration areas. Many of the fields that exist were produced using outdated technology. Modern drilling and production practices can perform a quick turnaround of clapped out assets. The offshore Gulf of Mexico has hardly been scratched: there is estimated to be up to 15 billion bbls of undiscovered, recoverable oil, and trillions of cubic feet of associated gas, that lie in Mexico’s deep water portion of the Gulf. Finally, the unconventional oil and gas revolution that has taken place in Texas has extended across the Rio Grande into Mexico, the EIA estimates that the country may hold as much as 555 trillion ft3 of recoverable shale gas.

Mexico has already held several lease auctions. Participation has been relatively muted (partly due to low oil prices, and partly due to growing pains at CNH, the federal agency overseeing privatisation), but initial signs are promising that international explorers will participate. In the refining sector, Pemex is calling for partners to help modernise its main facilities because the assets suffer from frequent downtimes, a bloated union and multi-billion annual losses.

It is in the natural gas transmission and petrochemical upgrading that the most significant progress is being made. For the last several years, Mexico’s national electricity utility, CFE, has been retrofitting its ageing bunker-fired generating facilities with natural gas turbines. Mexico already operates over 11 000 km of gas lines, and is looking to increase cheap imports from the US. Pemex recently said it would spend US$2.5 billion on the second phase of the Los Ramones pipeline, which will eventually run from the US to Mexico border to central Mexico. The 290 km line, which is being built in a joint venture (JV) with GDF SUEZ, has a capacity to carry 1.4 billion ft³/d. TransCanada, which already operates two pipelines in Mexico worth US$2.6 billion, expects to double its investments in Mexico to about US$5 billion by 2018.

In the petrochemical sector, Brazil’s Braskem and Mexico’s Grupo Idesa have been working to complete the Ethylene XXI Cracker, which was commissioned in late 2015. Until now, Pemex has been the sole petrochemical feedstock provider, producing around 600 000 tpy. But Mexico consumes about 2 million tpy, and demand is growing. The new cracker will make 1.05 million tpy of ethylene, 750 000 tpy of high density polyethylene, and 330 000 tpy of low density polyethylene.

Clearly, there are challenges to operating in Mexico. Corruption and murky practices are rife. Fraudulent fuel sales, adulterated gasoline, theft of fuel tank trucks, and tapping of fuel lines by criminal enterprises, over 4000 cases in 2014 alone, have been common for years. Pemex, which will dominate the sector for many years to come, employs over 150 000 staff throughout the country; how they, and their potent unions, will react to changes remains unclear. New North American gas pipelines from the US Gulf Coast (USGC) delivering cheap gas have the potential to undermine development in Mexican fields. The investment of over US$100 billion in petrochemical plants in the US may also crimp local petrochemical construction.

On the plus side, Mexico is taking corruption allegations seriously, putting in transparent oil and gas regulations and policies. The federal government is committed to reversing the downward production trend for both oil and gas, and increasing revenues. Mexico is capable of moving entire sectors of the economy in the right direction when the will is there.

Read part two of this article here.

Written by Gordon Cope, Contributing Editor. This is an abridged article taken from the February 2016 issue of Hydrocarbon Engineering. Subscribers can view the whole issue by logging in.

Read the article online at: https://www.hydrocarbonengineering.com/special-reports/29012016/a-south-american-story-part-one-2311/