Mexico’s oil and gas industry is about to open up to the rest of the world — and American oil and gas companies are eager to get a foothold in a market closed to outsiders since 1938.
That’s the year Mexico nationalized its oil industry and ordered American and other foreign companies out.
But before major exploration can take place, Mexico has to create the infrastructure to support it — roads and, especially, pipelines. That’s where the challenges begin.
In the last 12 months, there’s been a five-fold increase in pipeline capacity joining the U.S. and Mexico. The main lobbying group for the natural gas industry, America’s Natural Gas Alliance, says the pipeline development is all tied to Mexico's energy reform.
It's part of a nationwide infrastructure build-up in Mexico to support the new energy production. And U.S. energy producers are eyeing their potential in a greatly expanded market.
Mexico’s government says it hopes to use that imported natural gas to reconfigure the border economy. Mexico has already drilled more than two dozen exploratory wells in the north. The projected expansion of Mexico’s domestic energy sector far exceeds what Mexico can currently generate.
At an ejido in Chihuahua, residents said they’d been told by a local businessman that their 1,500-acre parcel, about an hour from the Rio Grande, is being considered as one location for a series of five natural gas pipelines that Mexico’s state-owned oil and gas agency, Pemex, wants to build along or near the border.
Ejidos are collectively-owned farms, a legacy of the Mexican Revolution when landless peasants were given land. Like most in Mexico, this ejido has struggled for decades.
But today this slice of dusty, hardscrabble land has the potential to become valuable. It’s through this part of the border that Mexico wants to build one of two pipelines to bring in natural gas from the Permian Basin of Texas.
“We know they’re looking but no one’s asked our permission to build pipelines on our land,” Benjamin Ovalle, the ejido’s leader, said in Spanish.
At a nearby, privately-owned ranch, an 84-year-old rancher and farmer said engineers had come to his ranch two weeks ago. He said they showed him plans for a pipeline that went through one of his ranches.
“We have a lot of doubt about the gas pipeline and which land it will be built on,” the rancher said. His skin was burnished by the Mexican sun and his gnarled fingers spoke to a life on the land.
He said the engineers told him they wanted to pay for the right to use his and his neighbors’ lands.
“I’m not renting or selling this property,” he said he told them.
U.S. energy interests face, perhaps, an even bigger challenge than unwilling sellers: pipelines across much of Mexico are vulnerable to organized crime.
Mexico’s Attorney General’s Office and Pemex allege criminals have drilled nearly 2,500 pipeline taps so far this year, up more than one-third from the same period in 2013. Pemex estimates that the stolen hydrocarbons are worth more than $1 billion.
All of this poses problems for American energy interests. They need access and security.
Political scientist Cal Jillson said Mexico can both get its energy sector in order and make life difficult for organized crime.
He said energy companies entering the Mexican market will be able to leverage their investment with the Mexican government.
“These American oil companies will bargain with the Mexican government,” Jillson said. He imagined an American oil executive's pitch: "‘If we come in and help you, some of that additional revenue you have to dedicate to protecting our investment and your investment in those pipelines,'” Jillson said.
