August 2017, Vol. 244, No. 8
Features
Exporting Natural Gas to Mexico: An Opportunity for Texas?
As partners in the Houston office of the law firm Jones Walker LLP, Jennifer D. Hamer and Amy L. Vazquez have a front-row perspective on the legal and business issues surrounding the export of natural gas from the United States (through Texas) to Mexico.
Hamer has a broad business practice in energy, real estate and finance transactions, focusing on the development, operation and financing of domestic and international energy infrastructure projects. Vazquez concentrates her practice on energy litigation, energy and natural resources matters, oil and gas law, eminent domain and complex business litigation. They provide counsel to oil and gas companies at every step in the process of energy exploration, development, production and distribution.
P&GJ: Why might this be a good time for U.S. energy companies, and Texas companies in particular, to consider exporting natural gas to Mexico?
Vazquez: We’re seeing several forces acting at once. In Mexico, government-led energy reforms include unbundling the state-owned power utility, promoting competition, reducing prices and attracting investment for cleaner forms of energy. By 2024, the Mexican government would like to see 35% of its energy supply coming from cleaner and renewable sources, including natural gas, solar and wind, and it has been actively opening up new avenues for natural gas projects. Thanks to the shale boom in the United States, a surplus of natural gas may be used to meet the demand coming from Mexico, which does not currently possess the necessary infrastructure to supply domestic natural gas at this level.
Hamer: Since Texas already has most of the needed hub infrastructure in place, companies in the United States are able to gear up fairly quickly to export natural gas to Mexico. This should create a win-win for Texas energy providers otherwise unable to find domestic buyers for their surplus natural gas, and for Mexico as they switch to cleaner energy at lower prices. All of that said, however, each company must evaluate the data and make its own decision as to whether exporting gas to Mexico — or anywhere else — is the right option.
P&GJ: What are some of the main considerations for Texas companies?
Hamer: First, you’ll need to ensure compliance with all state and federal regulations. Texas has various regulatory permits required by the Texas Railroad Commission and other agencies. Pipeline companies must show that the pipeline will transport natural gas for public use and negotiate a fair price with landowners in order to obtain easement rights over their property.
Vazquez: And even though intrastate pipelines would be primarily regulated by the state of Texas, federal approval would be required at certain points, particularly where pipelines cross the U.S.-Mexico border. These activities are regulated by the Federal Energy Regulatory Commission (FERC). In addition, other agencies, such as the U.S. Army Corps of Engineers, would need to approve certain aspects of these initiatives.
Hamer: In addition to what Amy just described, environmental, noise and other issues would require review, as is typical with any infrastructure project. In the case of new pipelines, however, this might open the door for environmental or community groups to request expanded inquiries into activities elsewhere in the state that are in some way connected with the new project. There are also some very real political tensions between the United States and Mexico at this time.
While they are unlikely to break an otherwise strong economic relationship, escalation or de-escalation of such cross-border disputes might impact the speed with which government approvals can be achieved. And finally, the business case for pursuing export opportunities relies in part on market conditions: natural gas supply and pricing. If these were to change, the opportunity might not appear as attractive over the long term.
P&GJ: What might be the impact on Texas communities of expanding natural gas exports to Mexico?
Vazquez: As with any infrastructure project, jobs would be created to support the necessary work, which in turn would benefit the local economy. To be frank, job growth is unlikely to be on a vast scale, and some of those jobs will go away once the pipelines are completed. But a certain number of employees will be required to maintain ongoing operations – and even a temporary injection of activity into a community can provide significant benefits.
Hamer: Landowners and local governments also stand to benefit directly from pipelines that cross their properties, through easements and tax revenues.
P&GJ: Texas companies are only half of the equation: they must work with partners on the Mexican side of the border. What advice do you have for those working with government entities and businesses in Mexico?
Vazquez: We would strongly advise identifying and working with legal counsel in Mexico, in addition to your regular advisors in your home jurisdiction. That’s something we would say to any company seeking to conduct business anywhere in the world, whether a natural gas company, a retailer or a manufacturer. It’s also the same message we give to foreign companies or businesses headquartered in other U.S. states that want to enter the Texas marketplace: There is simply no substitute for having boots on the ground and firsthand insights into the business, legal, regulatory and cultural issues you are likely to face.
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