Mexico's Pemex sees profits from shale gas on rising prices

Mon Oct 1, 2012 9:17pm EDT

Related Topics

* Mexico to drill 20-25 shale gas wells in 2013

* North American natural gas prices rising

By David Alire Garcia and Adriana Barrera

MEXICO CITY, Oct 1 (Reuters) - Mexico's massive shale gas deposits could be profitably extracted if North American natural gas prices continue rising toward $4 per million cubic feet, an official with state oil monopoly Pemex said on Monday.

The country boasts the world's fourth-largest reserves of shale gas in deposits that may contain rich pockets of both natural gas and oil, according to the U.S. Energy Information Administration (EIA).

Jose Antonio Escalera, deputy director of exploration at Pemex Exploration and Production (PEP), said the company could turn a profit with prices "in the order of between $3 and $4" per million cubic feet and that it plans to drill 20 to 25 liquid shale gas wells in 2013.

U.S. natural gas prices closed on Monday at $3.47 per million cubic feet. They are down more than 74 percent since 2008 largely due to dramatically increased supplies, but they've recently been rising, climbing from $1.90 in April.

"We see the potential," Escalera said at a conference on shale gas, which is trapped in rocks and requires expensive technology called hydraulic fracturing, or fracking, to unleash.

Escalera added that Pemex would this year begin drilling at least two additional wells to prove the existence of more profitable shale oil.

He said that PEP has already drilled four shale gas wells in the country's Burro-Picachos field, an extension of the Eagle Ford shale formation near the U.S.-Mexico border, plus two others nearby.

Once test wells are drilled and data collected, Escalera said he expects each well to cost $5 million to $8 million.

The EIA estimates Mexico, the world's No. 7 oil producer, has up to 680 trillion cubic feet (tcf) of natural gas.

Earlier on Monday, Mexico's deputy energy secretary Mario Gabriel Budebo said the country's current shale gas deposits stand at a more conservative 297 tcf.

A shale gas boom has been turning the United States into a gas exporter.

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