Mexico could still use hydraulic fracturing: Nahle

Mexico has not ruled out hydraulic fracturing to drill for oil and natural gas, despite earlier pledges to prohibit the practice, energy minster Rocio Nahle said.

"We have gas reserves that can be obtained by fracking, and we are walking that path, analyzing new technology," Nahle said in Mexico City today.

President Andres Manuel Lopez Obrador has said repeatedly that his administration will not allow hydraulic fracturing to be used to produce oil and natural gas because of environmental concerns. Lawmakers in the senate have also called for a ban on the practice.

But as domestic natural gas production has declined, less expensive imports by pipeline from the US now account for over half of Mexico's natural gas needs, creating a situation that many industry analysts say requires development of Mexico's unconventional resources.

"Lopez Obrador's decision to end deep water and unconventional production returns us to the past where experience shows us that we will not be able to reverse the decline in production," Lourdes Melgar, energy analyst and former oil minister, said at the Energy Mexico conference.

Mexico's state-owned Pemex has used hydraulic fracturing in around 22pc of all wells developed in conventional resources. The company has said it could produce up to 60bn barrels of oil equivalent in unconventional resources, mainly located in northern Mexico's Burgos Basin, just south of the US Eagle Ford shale play that has revolutionized production levels in the US.

The ministry energy (Sener) is looking at new technology that "is still very expensive but that does not have a big environmental impact nor requires the use of large quantities of water," Nahle said.

Pemex produced 4.9 Bcf/d of natural gas in December, down by 2.2pc from November and down by 1.5pc from December last year, according to the latest information from Pemex.

The concurrent decline in crude production has also caused a reduction in associated gas production, Nahle said.

Mexico imported around 4.9 Bcf/d of natural gas in September, the highest level in three years, according to the latest information from the energy ministry.

But how Mexico plans to develop its unconventional resources remains unclear as the country's first ever shale auction, originally scheduled for next month, was cancelled last December and state-owned Pemex has pledged to refocus its efforts on shallow water production.

Lopez Obrador has pledged to increase oil production to 2.6mn b/d by 2024 and through the accompanying associated gas, increase gas production by 50pc.

While no further upstream auctions will be held for three years, Nahle confirmed today that private-sector companies are welcome as long as they manage to increase production under existing contracts.

And although the government plans to reduce its dependence on natural gas imports, Nahle confirmed that the government is interested in building new pipelines.

"We want to build new pipeline infrastructure but we have to do it responsibly, providing guarantees to those that want to invest and not generating social problems," Nahle said.

Of the 25 new natural gas pipelines tendered by state-owned utility CFE and Pemex under the previous administration, at least three are held up by opposition from indigenous communities. Once complete, import capacity is expected to increase by 6.2 Bcf/d to a little over 11 Bcf/d.

There will also be no attempt to amend the 2014 energy reform for at least three years, said Nahle.