FORT WORTH, Texas—Mexico has already made it clear how much natural gas it needs to import from the U.S. and how it wants to get it. The issue on this side of the border is meeting that challenge.

“Mexico decided to help build three pipelines out of Waha direct with 3 Bcf [billion cubic feet] of capacity,” Gary Conway, principal, president and CEO of Vaquero Midstream LLC, said at the recent DUG Permian Basin conference. “To me, that’s really a pretty good indicator that this is exactly the spot where they want to pick up their gas.”

Mexico produces about 2 Bcf per day (Bcf/d) and imports about 2 Bcf/d from the U.S., much of it through the Agua Dulce Hub in Nueces County, Texas. Natural gas makes up about 40% of the country’s energy consumption, but that is growing as gas replaces oil in electric power generation.

About 75% of Mexico’s natural gas output is through associated gas at offshore oil platforms, the U.S. Energy Information Administration reports. This production is expected to remain static long-term, creating an opportunity for U.S. producers, especially those operating in the Permian’s southern Delaware Basin, to provide from 3 Bcf/d to 5 Bcf/d.

Source: Bloomberg, Hart Energy

About 4 Bcf/d of gas flows through Waha already. Conway made a comparison to Agua Dulce, which provided a premium of 10 cents to 15 cents per million Btu when it first was used as a conduit for shipping gas to Mexico; producers can expect that type of netback from Waha, he said.

Not that challenges don’t present themselves.

“We have some methane regulation issues,” Conway said. “We have CO2 emission issues. We’ve got flaring. We’ve got all kinds of tax issues. A lot of those uncertainties have a direct effect, as we all know, about how we operate our business today and in the future, both physically and economically.”

On the upside, the price of West Texas Intermediate crude during DUG Permian Basin was about double what it was during NAPE in February in Houston. Permian producers have made significant improvements—as much as 30%—to estimated ultimate recovery, he said.

But Mexico has oil. What it needs is gas.

“You can always place crude on trucks but you can’t put gas on trucks—you’ve got to have pipe for that,” Conway said. “And we’ve got rich natural gas, we don’t have dry natural gas, so we have to have some other facilities in order to accomplish what we need to do, remembering the opportunity that Mexico has asked us to provide.”

Vaquero’s solution centers around the ability to expand, as seen in its rich gas gathering system in Reeves County, Texas.

“If you put a large pipeline in, you create scalability on day one,” Conway said. “We’ve put a 30- and 24-inch in the belly of the basin in Pecos and Reeves counties in order to do that so we can assist producers. It’s also large enough to handle the liquid fallout in these particular rich gas plays.”

The system boasts 75 miles of lines with capacity of 800 million cubic feet per day. Vaquero’s 300-acre Caymus Cryo Plant I has multiple outlets for residue and four physical connections to 12 total markets, including Mexico. The plant also connects to two NGL outlets, the Lone Star NGL Pipeline and the Chaparral NGL Pipeline.

Joseph Markman can be reached at jmarkman@hartenergy.com and @JHMarkman.