Hubbub over shale gas grew wildly in 2011, in part because of the controversial Keystone XL pipeline—slated to transit gas from Canada’s tar sands to refineries along the U.S. Gulf Coast—and in part because of disclosures about robust U.S. shale gas production that made the country a net energy exporter for the first time since 1949. "Shale gas, the biggest energy innovation since the start of the new century, has turned what was an imminent shortage in the United States into what may be a hundred-year supply," says Daniel Yergin , a leading energy analyst and author of The Quest: Energy, Security, and Remaking of the Modern World.
Mexico, despite having the fourth-largest shale gas reserves in the world (behind China, the United States and Argentina), has been a passive observer of the trend. Whereas shale exploration north of the border began in earnest a decade ago, it was only in March of 2011 that Pemex, Mexico’s state-owned energy monopoly, started drilling its first exploratory well  at a site in Hidalgo, a town in the northern state of Coahuila. It produces 2.9 million cubic feet of gas a day.
Mexico is also a passive recipient: After a decade of steady natural gas imports, 2011 saw a spike in the amount of gas Mexico imported from the US, accentuated by a five percent drop in Pemex’s gas output. Without tapping its shale reserves, Mexico’s domestic demand for gas is expected to outpace production by 6.5 percent annually for the next 15 years. Sometime before then, Mexico will become an overall energy—oil, natural gas, and coal—importer.
To avoid that fate, Pemex has announced plans to explore an additional 175 shale gas sites across the country by 2015, and 6,500 sites by 2050. That shouldn’t be overly ambitious: last year Texas, for example, granted over 2,800 licenses  to operate in its Eagle Ford shale reserve alone. But these medium-and long-term goals are unrealistic on the current track.
Pemex’s forte is oil, and while it has plenty of experience in natural gas the company is ill-suited to take advantage of emerging energy sources like shale. Until recently, Pemex’s monopoly extended to basic petrochemicals, and given that Mexico is already a major net importer  of all manner of olefins, synthetics, and polymers, any serious commitment to shale would increase usage of “petchems” several fold. Constitutional restrictions will need to be loosened so that foreign gas companies can more easily partner with Pemex, bringing with them the technological expertise and advanced equipment that Pemex lacks. In short, if Mexico is to bring its estimated 681 trillion cubic feet of shale gas reserves to market, Pemex will need to undergo wholesale reform.
Jordy Herrera, Mexico’s energy secretary for the past nine months, is spurring Pemex in this direction. Within weeks of his appointment, Herrera initiated a push to substitute the source of Mexico’s long-term electricity needs away from nuclear power and toward natural gas.
The economic benefits would be significant. According to Herrera, Mexico could draw $7 to $10 billion a year in foreign investment through various Pemex partnerships. This would create roughly 100,000 jobs a year, directly and indirectly, out to the late 2020s.
It would also yield geopolitical gains. Mexico stands to achieve energy independence, insulating the country from volatile world gas prices for a number of decades—based on current estimates, Mexico has enough shale to meet domestic gas demand for 60 years .
A continent-wide gas-exporting bloc could be set to emerge, stretching from the Yukon to the Yucatán. TransCanada—the firm building the Keystone XL pipeline—has already announced plans for a $500 million  project to link a pipeline in the state of San Luis Potosí to Mexico's national pipeline system, with the final destination to be a power plant in the state of Querétaro. Not incidentally, integrating Mexico’s energy grid in this fashion would draw it closer into North America’s energy market.
More fancifully, investment from US companies could have knock-on effects in Washington, leading to a broad re-engagement of Mexico. Whereas Mexico represented the “giant sucking sound” of lost manufacturing jobs in the 1990s, and a drug violence-riddled neighbor in the 2000s, it could become the go-to energy partner of this decade. Mexico’s international standing could be further bolstered by investment opportunities from energy-hungry rising powers.
Given these prospects, in December Herrera said that failure to intensively harvest would be “unforgivable .” But, paradoxically, dithering may serve Mexican interests.
A blip in the global energy market currently allows Pemex to export oil for more almost $100 a barrel, while the bonanza to the north has natural gas prices at historic lows, down over 80 percent in the past five years. Reservations about domestic production of shale gas are growing.
Will Shale Prove Shallow?
As in the United States, environmentalists in Mexico say that the industrial process of hydraulic fracturing, or “fracking,” used to force shale gas to the surface where it can be recovered, may pollute drinking water. Rumor is also feeding worry that fracking could induce earthquakes, a rather disquieting prospect in a country with a history of massive earthquakes. Others question the real gain of shale gas given the immense energy expended from the fracking process.
A singular challenge to Mexico is lack of water. Coahuila, the epicenter of Mexico’s shale reserves, is the second-driest state in the country and is far removed from the type of water infrastructure needed to seriously commit to fracking. It’s anybody’s guess how much water might be required to frack in the arid north, and there are no publicly available feasibility studies about the costs of getting the water infrastructure in place. So far, the government’s only proposed solution involves vaguely defined “service clusters ” installed around high concentrations of wells.
Meanwhile, technological advancement is proving to be a double-edged sword. Instead of maximizing efficiency and mitigating environmental disruption as fracking proponents had hoped, more precise surveying technology is being used to re-assess recoverable reserves, with some disheartening results. The US Department of Energy recently cut its estimate of the amount of gas in Pennsylvania’s Marcellus site by two-thirds , and its nationwide estimate by over 40 percent. If the revised numbers turn out to be accurate, the claims of a 100-year supply made by Yergin and industry lobbyists will be reduced to about 35 years. Elsewhere, shale projects in Poland and Hungary have proven a bust. (By contrast, companies in Argentina and China have recently made significant upward revisions to estimates of shale reserves in those countries.)
A Seismic Shift
If 2011 was the year of wide-armed embrace of shale as the alternative fuel of the future, 2012 is shaping up to be the year of sober resignation—shale is just one energy source, and it carries drawbacks just like all other fossil fuels.
Herrera, who spoke of slowly winding down nuclear plants in October, has changed his tune of late, putting new nuclear plants back on the table. Perhaps this is one way to hedge against shale gas.
On Feb. 20, the United States and Mexico agreed to cooperate  when drilling for oil and gas along their maritime border in the Gulf of Mexico. Under the agreement, US energy companies will be allowed to work with Pemex in the Western Gap, an enormous area in the Gulf of Mexico that had previously been under moratorium. Celebrated by shale advocates as a sign that Pemex is slowly liberalizing and similar land-based agreements are in the works, the deal could also be read as Pemex committing to offshore resources instead of emerging possibilities on land.
What’s clear is the North American energy market is changing. Since the 1970s, the US represented the great maw where gas and oil from Canada and Mexico went for digestion. However, the continent is remaking itself as an energy corridor, with the US producing more fuel and consuming less, while Mexico is producing less and consuming more. What’s unclear is how Pemex and the Mexican government will respond to this fundamental shift.
For now, high oil prices and lingering doubts about fracking complement a wait-and-see approach. At some point though, Pemex will have to bend to the needs of a growing middle-class economy and either devise energy solutions with the help of foreign partners—and shale recovery might be a promising way to start—or cede its role as Mexico’s indispensible fuel provider altogether.