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

US President Barack Obama (L), Mexican President Enrique Pena Nieto and Canadian Prime Minister Stephen Harper (R) shake hands after a joint press conference following their trilateral North American Leaders summit at the Palacio de Gobierno in Toluca, Mexico, on February 19, 2014. The three leaders joined for the summit of North American Leadersfor talks focusing on 'a range of issues important to the daily lives of all of North America's people, including economic competitiveness, entrepreneurship, trade and investment, and citizen security.' AFP PHOTO/Jewel Samad
National Journal
Steve Levine, Quartz
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Steve LeVine, Quartz
Feb. 20, 2014, 7:42 a.m.

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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