Gas on the rise in Eagle Ford as Mexican demand grows
Wednesday, May 31, 2017
The Eagle Ford play in South Texas may not be predominantly known for its gas output, but this could be about to change owing to new infrastructure coming online, as well as rising gas demand from Mexico.

Currently, around 90% of drilling across the Eagle Ford is targeting oil.

Despite this, the play still accounts for roughly 5% of total natural gas production in the Lower 48 US states, or roughly 3 bcf (85 mcm) per day.
As it stands, a sizeable portion of this output is associated production from oil and liquids drilling. Much of this is flared owing to a lack of pipelines and other infrastructure needed to transport the gas. With demand rising across the border in Mexico, however, there is hope that the Eagle Ford could be ideally suited to supply a rapidly growing market.
Already roughly 60% of all US gas exports are sent to Mexico, largely from the Eagle Ford and the Permian Basin.

By the end of next year, two new pipelines with a combined capacity of 3.3 bcf (93.5 mcm) per day are anticipated to be operational, connecting the Eagle Ford to customers in Mexico. These are Howard Energy’s Nueva Era project and Spectra Energy’s pipeline from Texas’ Nueces County.

Thirsty business
For some time, Mexico has struggled to obtain enough gas to fuel its power plants, and this is unlikely to change anytime soon. Over the next few years, it is estimated that Mexican natural gas demand will increase by another 2 bcf (57 mcm) per day as new plants and upgrades come online. Indeed, if the country continues its rapid progress following Mexican President Enrique Nieto’s political and economic reforms, this figure may even prove conservative.

Meanwhile, Mexico’s domestic gas output is falling. Many firms operating in the country have historically chosen to focus on oil exploration and production at the expense of gas. As existing fields mature, new drilling has not kept pace and been able to offset production declines. And while Mexico is thought to hold significant shale reserves of its own, a lack of infrastructure and the remoteness of shale plays, among other factors, have made them unappealing to investors.

Speaking to a conference in San Antonio last week, Howard Energy Mexico’s president, Brandon Seale, said that against this backdrop, it was not surprising that Eagle Ford gas was proving attractive to Mexican customers.

“There’s no reason that Mexico should be chasing gas with the drill bit when they can buy it at the border for a lot cheaper,” Seale said. “A big issue is the declining production in Mexico. Realistically, it’s probably going to keep happening.”

Topped out
Seale went on to say that Monterrey, the destination for Howard’s Nueva Era project, “is a market that passes through or consumes about 1.3 bcf [36.8 mcm] per day of natural gas”.

“It’s basically topped out,” he added. “There’s no capacity available on existing pipelines to get gas into Monterrey.”

This pattern is repeated elsewhere too. As a result, there is little doubt that Eagle Ford gas production has considerable potential if sufficient pipeline capacity is put in place.

In the long term, there is the hope that Mexico will develop its own shale resources. Yet the prospect of Mexico developing its own shale industry to the point that it can slash imports is at least a decade away, if not more. Any turnaround at declining conventional fields also looks unlikely.

Either way, purchases from other countries will be needed to fill the gap.
For Mexico’s consumers, a ready supply of gas from the US is a major positive. And with gas prices forecast to remain low for some time, low transportation costs and the scalability of supply make exports economically attractive for US producers too.

This is expected to be further enhanced by investment in new infrastructure on Mexico’s side of the border, while the recent ending of the monopoly held by state oil and gas firm Pemex has ushered in a wave of liberalisation in the country’s gas market. As a result, for the Eagle Ford in particular, widespread gas flaring could soon be a thing of the past.

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