According to OGJ, Mexico had 14.6 trillion cubic feet (Tcf) of proven natural gas reserves as of January 2007. According to Pemex, the Southern Region of the country contains the largest share of proven reserves. However, the Northern Region will likely be the center of future reserves growth, as it contains almost ten times as much probable and possible natural gas reserves as the Southern Region. In 2006, Mexico produced 1.71 Tcf of natural gas, while consuming 1.98 Tcf. Pemex reported that Mexico imported 451 million cubic feet per day (MMcf/d) of natural gas in 2006.

Mexico’s natural gas production has grown in recent years, following steady declines during the late 1990s. During that time, natural gas consumption has grown steadily, driven mostly by the electricity sector, whose share of total natural gas consumption increased from 16 percent in 1996 to 32 percent in 2006. Pemex itself is the single largest consumer of natural gas, representing around 40 percent of domestic consumption in 2006.

Pemex holds a monopoly on natural gas exploration and production in Mexico. However, there is some private participation in ancillary services that support Pemex operations. The Mexican government opened the downstream natural gas sector to private operators in 1995, though no single company may participate in more than one industry function (transportation, storage, or distribution). It also created the Energy Regulatory Commission (CRE) to monitor the sector. CRE has awarded permits for natural gas distribution to Gas Natural, Tractebel, Gaz de France, Sempra Energy, Kinder Morgan, TXUEnergy, Grupo Diavaz, and Grupo Imperial.

Mexico’s constitution restricts private operators in the upstream natural gas sector. However, Pemex introduced multiple service contracts (MSC) in an attempt to increase non-associated natural gas production. Under an MSC, Pemex can hire a private contractor (including both foreign and domestic firms) to conduct production activities in proven reserve areas, for which Pemex pays cash for these services. At no time do these private operators gain ownership rights over the natural gas they produce, a provision to ensure compatibility of the MSC with Mexico’s constitution.

Pemex launched the first MSC bidding round in July 2003. The company awarded five blocks in the Burgos Basin to international and domestic operators: Repsol-YPF (Spain) received the Reynosa-Monterrey block; Petrobras (Brazil), Teikoku Oil (Japan), and Grupo Diavaz (Mexico) received the Cuervito and Fronterizo blocks; Tecpetrol (Argentina), Industrial Perforadora de Campeche (Mexico) received the Mision block; and Lewis Energy (U.S.) received the Olmos block. Pemex held a second MSC bidding round in July 2004. The round included acreage in the Burgos Basin that did not receive bids in the first round (Padera-Anahuac and Ricos blocks) and newly available areas of the Sabinas Basin (Pirineo and Monclova blocks). Results from the round were mixed. Pemex awarded the Padera-Anahuac block to consortium of two Mexican oil services companies in November 2004 and the Pirineo block to a consortium of seven Latin American firms in February 2005. However, the Ricos block received no bids, while Pemex later cancelled a successful bid on the Monclova block by a consortium of two U.S. and three Mexican companies.

Mexico’s natural gas production is relatively spread throughout the country. Onshore fields in the northern part of the country represented 42 percent of Mexico’s natural gas production in 2006, while onshore fields in the south contributed 25 percent, and offshore fields in the Gulf of Campeche represented the remainder. Mexico’s natural gas production is split between associated (58 percent) and non-associated (42 percent) production.

Pemex operates over 5,700 miles of natural gas pipelines in Mexico. The company has twelve natural gas processing centers, which produced 436,000 bbl/d of natural gas liquids (NGLs, including condensates) and 215,000 bbl/d of liquefied petroleum gas (LPG) in 2006. Pemex also operates most of the country’s natural gas distribution network, which supplies processed natural gas to consumption centers. The natural gas pipeline network includes ten active import connections with the United States.

Foreign companies have been able to make inroads into Mexico’s midstream natural gas sector. In December 2006, TransCanada inaugurated the 80-mile Tamazunchale Pipeline. The system, with an initial capacity of 170 MMcf/d, extends from the Pemex natural gas processing facility in Naranjos to a gas-fired power plant near Tamazunchale. In 2007, Gas Natural acquired a 34-mile natural gas pipeline as part of a deal to purchase four gas-fired power plants from Electricite de France.

There is a single operating LNG terminal in Mexico, and one other currently under construction. In addition, there are several more plants in various stages of the planning process. Many of the facilitates are near the U.S.-Mexico border in Baja California, with the intention to supply markets in both countries. In addition, numerous additional LNG projects have been stalled or cancelled.

Altamira, a joint venture of Royal Dutch Shell (50 percent), Total (25 percent), and Mitsui (25 percent) received its first LNG cargo in August 2006. The plant, located in Tamaulipas state, has an initial capacity of 500 MMcf/d, with plans to increase the project to a peak capacity of 1.3 Bcf/d. CFE has signed a 15-year contract to purchase the entire output of the terminal.

The Costa Azul project, near Ensenada, is currently under construction. Project leader Sempra Energy plans to begin operations in the first half of 2008, with a peak send-out capacity of 1 Bcf/d. Royal Dutch Shell had originally obtained a permit to build its own LNG receiving terminal in the area, but later decided to buy into a 50 percent share of Sempra’s project instead. Most of the natural gas will supply domestic customers in northwest Mexico, but some natural gas could also be exported to California or Arizona.

In May 2004, DKRW signed an agreement with the state government of Sonora to build a 1.3-Bcf/d LNG receiving terminal at Puerto Libertad, on the Gulf of California. El Paso later joined the project as well. According to project sponsors, the plant could begin operations by 2011. Some of the natural gas will supply local consumers, with the remainder exported to the United States.

In June 2006, CFE released the first public tenders for the construction of an LNG receiving terminal at the port of Manzanillo. The tender calls for the terminal to supply 500 MMcf/d of natural gas for 15 years, possibly expanding to 1.5 Bcf/d. CFE has targeted 2011 for the commencement of the plant’s operations. In 2007, CFE signed a deal with Respol-YPF to supply LNG to the Manzanillo terminal; according to statements by Repsol-YPF, it would supply the facility from the Peru LNG project.