Mexico Energy Reform: Border Pipeline Challenge In Chihuahua

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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 an infrastructure to support it — roads and especially pipelines. And 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 industry’s lobby group — America’s Natural Gas Alliance — says it’s all tied to Mexican energy reform. The pipelines are part of a nationwide infrastructure build-up in Mexico to support the new energy production that Americans want to be a part of.

U.S. energy producers are eyeing their potential in a greatly expanded market.

And Mexico’s government says its hopes 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 needs more energy that Mexico can currently generate.

At an ejido in Chihuahua state residents say they’ve been told by a local businessman that their 1,500 acre parcel about an hour from the Rio Grande is one of the properties under consideration 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, including two that would import American energy.

Ejidos, collectively-owned farms, are 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, we spoke with an 84-year-old rancher and farmer, his skin burnished by the Mexican sun with gnarled fingers that speak to a life on the land.

“We have a lot of doubt about the gas pipeline and which land it will be built on,” he said.

He said two weeks ago, engineers came to his ranch. He says they showed him plans for a pipeline that went through one of his ranches.

He says 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.

There’s another challenge for U.S. energy interests. It is the elephant in the room as foreign oil and gas executives decide whether or not to enter Mexico’s new energy regulatory environment.

Pipelines across much of Mexico are vulnerable to organized crime.

In the last year, Mexico’s Attorney General’s Office and Pemex allege criminals have drilled nearly 2,500 pipeline taps so far this year, up more than a third from the same period in 2013. The stolen hydrocarbons are estimated by Pemex to be worth more than a billion dollars.

All of this poses problems for American energy interests. They need access and security.

Political scientist and Mexico watcher Cal Jilson at Southern Methodist University in Dallas says Mexico can both get its energy house in order and make life difficult for organized crime.

“These American oil companies will bargain with the Mexican government,” he said.

Jilson 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. ‘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,'” Jilson said.

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