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Mexico's Drug Cartels Are Standing in the Way of a Fracking Bonanza Mexico's Drug Cartels Are Standing in the Way of a Fracking Bonan... Mexico's Drug Cartels Are Standing in the Way of a Fracking Bonanza Mexico's Drug Cartels Are...

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Energy

Mexico's Drug Cartels Are Standing in the Way of a Fracking Bonanza

I admire your oil.(JEWEL SAMAD/AFP/Getty Images)

February 20, 2014

MEXICO CITY—If all goes well, drillers responsible for a shale-oil bonanza in Texas will soon cross the southern U.S. border and extend the hydraulic fracturing boom to Mexico. But first, the Mexican government, foreign oil companies or some combination of the two will have to neutralize some of the most savage gangsters in the world.

Oil and gas were a key subtext of yesterday's North American summit between Canadian Prime Minister Stephen Harper, Mexican President Enrique Peña Nieto and President Obama. Hoping to join the U.S. and Canadian energy boom and invigorate the laggard Mexican economy, Peña has pushed through a dramatic reversal of his country's seven-decade-old ban on private oil and gas drilling. His goal is to lure companies that are drilling in the deepwater Gulf of Mexico and the Texas shale patch to lead the development of Mexico's potential 42 billion barrels of oil.

Trade rules will have to be relaxed to allow the U.S. companies to quickly move labor and special equipment back and forth across the border when needed, experts here say. But more important, Peña has to deal with the Zetas and the Gulf Cartel, two vicious drug- and gun-running gangs whose turf overlaps Mexico's shale deposit. Nabbings, extortion, murder, and oil theft by the gangs have made U.S. drillers—traditionally cavalier about violence in the areas where they work—wary of venturing into the shale-rich states of Tamaulipas, Coahuila, and Nuevo Leon.

 

"Tamaulipas is not in government control. There is not a single business there that in some way does not pay off the organized-crime groups," said Louie Palu, an American war photographer who reported in the gang-run states from 2011 to 2013.

Peña has set a target of raising Mexico's oil production to 3 million barrels a day by 2018, a 25 percent increase from 2.4 million barrels a day now. But in shale oil, Mexico is essentially starting from scratch. State oil company Pemex, until now a monopoly, has drilled only a handful of shale wells. Meanwhile, just across the border in southern Texas, 11,000 well permits have been issued for the Eagle Ford shale formation. The wells have been drilled by wildcatters such as Apache, Devon, and Petrohawk, which have helped to resurrect Texas as a global oil powerhouse.

Eagle Ford alone produces some 1.2 million barrels of oil a day, and half of the 38,000 square-mile field lies within Mexico. While no other nation has managed to duplicate U.S. and Canadian success in hydraulic fracturing—the method used to drill shale oil and gas, popularly known as fracking—Mexico has perhaps the best shot because it can access the Eagle Ford.

"It will be a game-changer if we are successful in bringing down the successful shale operators from the U.S.," industry consultant Luis Miguel Labardini told Quartz.

But businesses operating in the Mexican states bordering shale-rich Texas and the Gulf of Mexico have been especially vulnerable to gang extortion. Pemex, operating conventional fields in the region, has also suffered from theft, often assisted by oil workers in cahoots with the gangs. Last year, Pemex found 539 siphons along its pipelines in Tamaulipas.

The Zetas and the Gulf Cartel are somewhat weakened after a government crackdown during the past two years—Zetas kingpin Miguel Angel Trevino Morales was arrested last year in Tamaulipas, and Peña last month unveiled a new national agency to strike at the gangs. Yet kidnapping was up by 20 percent last year, carried out by surviving factions and remnants. Kidnappers have tended to target Mexicans and not foreigners, but that will be slender consolation, given that most of the employees working the fields will be locals.

"They're very violent, these drug dealers," said Montserrat Ramiro of the Mexican Institute for Competitiveness. "You have to be vigilant of your employees so they don't get kidnapped. If you don't have a beefed-up security strategy, you can be extorted."

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