From stand-alone struggles to strategic synergy: How Kunah and Piklis could boost Mexico's gas production

Since 2017, Mexico's oil and gas production has fallen below 2 million barrels per day due to reduced public investment, mature production fields, and limited exploration.

In response, the administration of Mexican President Claudia Sheinbaum has introduced a strategic plan to support/drive the hydrocarbon sector. Key components of this plan include maintaining oil production at 1.8 million b/d and significantly increasing natural gas production. In 2023, the average national natural gas production was around 4.9 Bcf/d, but by October, it decreased to around 4.6 Bcf/d. Despite efforts to boost domestic production, Mexico remains heavily reliant on gas imports from the US, which accounted for approximately 72% of domestic consumption in 2023.

The Sheinbaum administration's hydrocarbon strategy aims to develop key gas fields to enhance production. Significant stranded gas resources exist in the ultra-deep waters of the Gulf of Mexico, including the Kunah and Piklis gas fields.

Currently, these resources remain unprofitable due to Pemex's focus on producing fields, lack of infrastructure, high investment needs, and their stranded nature. However, joint development under a tie-back scheme, in conjunction with the Lakach development, can make them profitable. This approach not only enhances profitability but also has the potential to reverse Mexico's gas negative production trend and reduce its dependency on imports.

Opportunities and results

The Kunah, Piklis and Lakach assets are strategically located in the ultra-deep waters of the Mexican Ridges Province, all operated by Pemex. Kunah, discovered in 2012, is approximately 100 km from the Veracruz coastline, while Piklis is 50 km offshore. Lakach, discovered in 2007, is located 40 km from the Veracruz coastline. Together, these assets represent significant opportunities within close proximity to each other in this stranded offshore region of the Gulf of Mexico.

In 2024, Pemex submitted a revised development plan for the Lakach field to the National Hydrocarbons Commission, which involves operating five pipelines to support the field's development, as well as the intention to carry out gas processing and commercialization activities onshore.

Production from the Lakach field is anticipated to commence in December 2026. Pemex aims to achieve and sustain a production plateau of 200 MMcf/d for approximately eight years before any decline in output is expected.

The ultra-deep waters of the Mexican Ridges Province in the Gulf of Mexico remain largely unexplored, with Pemex holding valid contract blocks in this region. Over the past few decades, Pemex has made several significant gas discoveries at notable sites, including Lakach, Kunah, Piklis, Labay 1, Ahawbil 1 and Alaw 1. Currently, these assets are in the discovery or appraisal phases; however, most are not economically viable for development using stand-alone schemes.

Among these discoveries, the development of the Lakach field stands out as particularly pivotal. By integrating tiebacks to the planned infrastructure at Lakach and expanding the onshore gas processing capacity from 200 MMcf/d to 600 MMcf/d, while also accounting for the necessary investments for expanding processing capacity, this strategic approach could significantly enhance the economic viability of the gas discoveries in the Mexican Ridges province.

Stand-alone developments for these individual fields lead to slower recovery and lower annual gas production volumes due to their isolated nature, according to an analysis by S&P Commodity Insights. This approach limits potential gas production volumes. In contrast, a joint development strategy, especially in a tieback scheme, is more advantageous. By integrating resources and infrastructure, this development plan can significantly enhance production output, achieving over 500 MMcf/d of natural gas production and recovering around 1.4 Bcf of natural gas.

From an economic perspective, developing the Kunah and Piklis fields independently is not feasible due to their negative net present values and high breakeven costs. However, these projects can become economically viable through a joint development strategy that utilizes the future infrastructure of Lakach, resulting in a positive NPV. This strategy effectively reduces the breakeven to a more acceptable level for gas projects.

Collaborating with private entities is essential for developing these resources, especially given the suspension of bidding rounds in Mexico since 2018, which has hindered the formation of partnerships. Despite this challenge, forming alliances with private players is essential to enhance the economic feasibility of such projects. Such strategic partnerships would help Pemex mitigate risks, provide it with access to advanced technology and expertise, and attract investment capital.