Expert Interview | The Future of Energy Developments in the Border Region

Matthew Fry is an Associate Professor of Geography at the University of North Texas where he teaches courses on energy geography, property rights, and Latin America. His research into hydrocarbon governance in Texas focuses on urban drilling, municipal distance ordinances, environmental justice, and land-use change.

As one of our 2018 grant recipients, Matthew and his team explored the opportunities and challenges to developing Mexico’s Burgos Basin. Some of the opportunities they identified are the Burgos’ production potential, its proximity to Texas, access to infrastructure, and the post‐Reform regulatory framework and contract models as important regional advantages. However, the challenges the region faces include restrictions to production activities in the Burgos, especially current politics, lack of infrastructure and production inputs in the Basin, negotiating with communities and landowners, narco‐violence and security concerns, a cumbersome regulatory framework, and dealing with Pemex and its legacy landscapes. Their full report can be found here.

We spoke with Matthew to learn more about this project and why he chose to focus on this area.

Why focus on the Burgos Basin?

I had worked on a project in south Texas exploring how Eagle Ford Shale production affected economies and local governments in the region. By most accounts, the Eagle Ford geology does not stop at the Texas-Mexico border and extends into northern Mexico. Called the Burgos Basin, the area offers a fascinating space to understand changes in Mexico’s oil and natural gas production strategies, associated public policies, and stakeholder perspectives on energy developments in the border region.

Having also worked on a dissertation on concrete aggregates and resource extraction in Mexico, I wanted to learn more about Mexico’s oil and natural gas sector, how it was changing, and what types of opportunities there might be for a more sustainable long-term future for Mexico’s energy sector overall.

I initially thought to do a comparison of the two regions. However, when Mexico’s new administration came to order in 2018, the dialogue around production changed and many in the area believed that the new administration may not continue to invest and develop the region. Stakeholders we spoke with suggested that the Mexican government would do better to focus on conventional natural gas in the Burgos Basin, rather than unconventional or shale production. And this seems to be what the government is doing. The Pemex 2019-2023 Business Plan discusses developing oil and gas reserves in some newly discovered reservoirs and in fields currently in operation, including reactivating gas fields in the Burgos basin.

Based on your research, do you think Mexico’s energy industry would fare better overall if its regulatory body was completely independent from government?

That’s an interesting question and I’m not sure how that could work, since the National Hydrocarbon Commission (CNH) and Secretary of Energy (SENER) are government entities. However, during the government of Enrique Peña Nieto, CNH and SENER maintained a hands-off attitude towards Pemex. Although it is possible to say that the regulatory requirements for Pemex were less severe than for private operators, the regulatory requirements also began to be applied to Pemex.

The intention of the current government seems to be to return Pemex to an earlier role when it served as the engine of the national economy, which may imply a return to a situation where Pemex is once again above those regulatory bodies, especially in regards to environmental and social aspects.

And with this question, perhaps you’re suggesting that Mexico switch its oil and natural gas regulatory structure to be more like Texas and the Railroad Commission? If that’s the case, I really don’t see that happening any time soon given that oil has long been seen as Mexico’s patrimony. Relinquishing state oversight of oil and gas regulation just doesn’t seem like it would even be an option. A system like Texas’ regulatory framework, which is notorious for the revolving door among the Railroad Commissioners and the oil and gas industry, is certainly how the industry would like to see regulations everywhere, not just Mexico.

Why is that?

Mexico’s nationalization of oil and gas goes back to 1930’s. Before Mexico’s government took control of production, the major producers in the region were from foreign countries, who extracted and exported resources with little to no benefit for Mexico. Mexico’s federal government nationalized the private companies’ holdings and established Pemex. Pemex was seen as an engine for Mexico’s economy. It mostly produced for the internal Mexican market and it also employed a lot of workers, which also spread the oil wealth internally. However, that model changed after the 1970s when oil exports were seen as another way to accrue benefits from oil. As well, more international companies began to participate in Mexico’s oil and gas sector, culminating in the 2013/2014 Energy Reforms. So oil has been an important part of Mexico’s economy and patrimony, and opening it to private and foreign entities necessarily would create some backlash, which is really what we’re seeing play out today with some of the current administration’s policies and positions.

How do you hope your research will help?

Our goal was to provide suggestions to policymakers, industry participants, and the wider public in both Texas and Mexico to think realistically about near‐term and future energy developments in the border region. There are signs that production activities are going to start ramping up again in the Burgos region, though shale gas production isn’t likely any time soon. Time will tell as to whether this will be a boon for the people in the region. Like several of the stakeholders we interviewed, my team and I believe favorable conditions are on the horizon and being patient with the current political and economic situation will go far to advance stakeholders interests in the Burgos.