Pemex is the national oil and gas company of Mexico. And fortunately for Pemex, Mexico has considerable state-owned natural gas resources. But because of legal, economic, and political barriers, the country is drastically underutilizing its gas reserves.
Mexico currently holds approximately 11.8 trillion cubic feet (Tcf) of proved gas reserves, but is seeing significant declines in reserves each year . While production in Mexico is declining, consumption is rising at nearly 7 percent annually . A major contributor to the rise in gas consumption is the increased use of natural gas as a fuel for electricity generation. Consumption in the electricity sector alone has grown from 16 percent in 1997 to 33 percent in 2007. Pemex itself is Mexico’s single largest consumer of natural gas, accounting for approximately 40 percent of the country’s annual consumption . The figure below shows the recent decline in Mexican natural gas reserves.
Already a net importer of natural gas, these trends raise questions of how Mexico can sustain its current energy policy as it relates to natural gas, or for that matter, why it would choose to.
Mexico has significant potential for new discoveries of natural gas, predominantly in the deep and ultra-deep waters of the Gulf of Mexico. However Pemex does not have the necessary technology or financing to develop these resources, and the current legal framework and political regime has proved that changing the status quo will be difficult. Additionally, legal restrictions in Mexico all but ban outside investment.
Mexico needs to create joint ventures and partnerships with foreign companies to significantly bolster exploration and production efforts in order to combat current declines in production as well as steady increases in consumption. By and large, Mexico has waited too long to act. Their energy policies have been extremely shortsighted and have failed to realize a growing need to open their natural gas market to outside investment. Policymakers should be aware of several certainties in the Mexican gas market, which should be the driving force behind many of their energy policy decisions.
1) There is a limited domestic gas supply and production is rapidly decreasing;
2) Mexico has shown a strong demand growth for natural gas in recent years;
3) Pemex has limited technology and financing;
4) Pemex has shown limited execution capability; and
5) There is significant potential for new natural gas discoveries .
If Mexico is to reverse this trend it must act ASAP, and dramatically change its policies to attract more foreign investors.
 U.S. Energy Information Administration. Mexico Energy Data, Statistics and Analysis, 2009. http://www.eia.doe.gov/emeu/cabs/Mexico/NaturalGas.html
 Leon, Alejandra and Falcon, Ricardo. Mexico’s Quest for Energy Reform: Making the Bid for the Quantum Leap? Cambridge Energy Research Associates, Inc. April 3, 2008
 Salazar Diez de Sollano, Francisco X., “Natural Gas in Mexico: Current Trends and Alternate Scenarios.” The James A. Baker Institute for Public Policy, Rice University. May 27, 2004.