One of the best things about my career is that it has given me the opportunity to travel around the world. Even though I have been to all 50 states and 38 countries, a trip to Mexico had eluded me until this week. Today’s column comes to you from the 39th country I have visited.

My day job brought me here to meet with an oil and gas company that will remain nameless, but which isn’t hard to guess. Since I have had a close look this week at the Mexican oil industry, I thought this would be an opportune time to review the country’s oil and gas sector, which is changing rapidly.

Mexico’s energy industry was nationalized in 1938 and entrusted to Pemex, the state-owned oil company. While Pemex is no longer the sole Mexican oil producer it remains the biggest, and is in fact one of the largest oil companies in the world.

One of the largest oil fields in the world, Cantarell, is located off the eastern coast of Mexico. About 75% of the country’s oil production comes from the Bay of Campeche in the Gulf of Mexico, near the states of Veracruz, Tabasco, and Campeche (one of the regions I visited this week.)

Mexico has long been one of the world’s top oil producers, but its output and rank as an oil exporter to the U.S. have declined in recent years. A decade ago Mexico produced nearly 4 million barrels per day (bpd), ranking as the world’s 5th largest oil producer. But production there has declined each year since 2004, and by 2015 had fallen to less than 2.6 million bpd. Mexico is no longer among the top 10 producing countries.

But Pemex has estimated that there are still 29 billion barrels of oil equivalent (BOE) in conventional and deepwater deposits and another 60 billion BOE in shale. The Eagle Ford stretches into Mexico, and the country’s energy secretary recently indicated it may open its shale fields to U.S. drillers next year.

So there is still great potential for oil production in Mexico, and to realize it after the lengthy decline the government has embarked on a program of aggressive energy reforms. The Pemex oil monopoly was ended after 76 years, and the company must now compete with international oil companies in the Mexican market.  

Mexico has put oil and gas exploration blocks up for bid, and just this week awarded eight of the ten auctioned deepwater blocks to foreign producers. Australia’s BHP Billiton (NYSE: BHP) was the big winner, but ExxonMobil (NYSE: XOM), Chevron (NYSE: CVX) Total (NYSE: TOT) and China Offshore Oil Corp. also came away with exploration leases.

Mexico is also one of the world’s top 20 natural gas producers, maintaining pretty stable output for the last decade. But demand has surged given the disparity between the oil and gas prices, and Mexico has become the most important foreign destination for U.S. natural gas. In 2010, Mexico imported 0.9 billion cubic feet per day (Bcf/d) of natural gas from the U.S. By 2015 that had grown to 2.9 Bcf/d, with no sign of slowing down.

A substantial portion of Mexico’s gas production comes from associated gas, so known because it is a byproduct of oil drilling. Crude oil contains varying amounts of dissolved natural gas, and that gas can be captured and purified to produce power, heat or feedstock for chemical manufacturing.

The capture and processing required isn’t always economical, and often the associated gas just ends up getting burned off in flares at the well site. Globally, this is a major source of greenhouse gas emissions. But Mexico has made commitments to reduce flaring, so there is a major effort underway there to find cost-effective solutions.

Converting associated gas into pipeline quality methane is often challenging, but that is in fact what I am working on. This was the reason for my trip to Mexico – to better understand the challenges and opportunities involved in monetizing gas that is being wasted (and adding greenhouse gas emissions to the atmosphere) in the Bay of Campeche. Stay tuned for future developments.

Meanwhile, if you are interested in profiting from Mexico’s energy reforms, consider subscribing to The Energy Strategist and MLP Profits as we identify the producers and infrastructure providers that will benefit most.     

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