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By Duncan Wood
In early August 2025, Mexican oil company Pemex made a quiet announcement with loud implications: the state-owned enterprise will focus on unconventional oil and gas fields, which ultimately means that President Sheinbaum is authorizing the use of hydraulic fracturing—better known as fracking. Under her predecessor, Andrés Manuel López Obrador, fracking was all but frozen, a casualty of environmental rhetoric and resource nationalism. But Sheinbaum’s decision reflects a sober reading of the country’s energy realities: Mexico’s state oil company, Pemex, is in trouble; production is falling; and dependence on the United States for natural gas has reached a point that many in government now view as a strategic liability.
Fracking is not a new technology, nor is its potential in Mexico a secret. In the United States, it transformed the energy landscape in the early 2000s, unlocking vast reserves of oil and gas trapped in shale rock. That boom turned America into the world’s largest producer of hydrocarbons, a net exporter of both crude and gas, and—at least for a time—shielded U.S. consumers from the price shocks of global markets. In Mexico, the promise has always been there. The Burgos Basin, straddling Tamaulipas, Nuevo León, and Coahuila, along with the Sabinas and Tampico–Misantla basins, holds an estimated 64 billion barrels of oil-equivalent in unconventional reserves. But politics, environmental concerns, and a preference for conventional fields have kept those reserves underground. Pemex, the national oil company, has quietly been using fracking in some fields for a while – as the late National Hydrocarbons Commissioner Hector Moreira once said, “we don’t allow fracking but we do allow hydraulic stimulation”.
Without deep legal and regulatory reform, Mexico will not be able to develop an efficient, competitive shale industry.
The urgency of tapping unconventional reserves is now impossible to ignore. Two decades ago, in 2003, Mexico was producing about 3.4 million barrels of oil per day. Today, that figure has fallen to roughly 1.6 million. Natural gas output has fared no better—dry gas production has dropped by nearly half since its 2011 peak, from around 5,000 million cubic feet per day to about 2,660 MMcf/d. Those declines have left Mexico increasingly reliant on imports, especially from its neighbor to the north.
That reliance is deep and growing. As of 2024, more than half of the gas used to generate electricity in Mexico—about 54%—comes from the United States. In 2023, Mexico spent nearly US $6.8 billion to import an average of 6.18 billion cubic feet per day, a bill that has averaged roughly $658 million per month in early 2025. Nearly all of it comes via pipelines from Texas, an arrangement that is efficient in good times but precarious in an era of tense bilateral relations. Washington has become more demanding on trade, migration, drugs, and security; in Mexico City, the idea that the country’s economy depends on uninterrupted flows of Texan gas is now seen as an unacceptable vulnerability.
Sheinbaum’s turn to fracking is, in part, an effort to buy back energy sovereignty. But recognizing a resource and producing it are two very different things. The U.S. shale revolution was powered by thousands of private companies competing to innovate, cut costs, and push the technological frontier. Mexico has moved in the opposite direction in recent years, tightening legislative restrictions on private participation in the energy sector and centralizing power in Pemex. The state company, however, is ill-prepared to lead a fracking boom. It is the most indebted oil company in the world, carrying nearly US $99 billion in financial obligations, with an additional $23 billion owed to suppliers. $5.1 billion of Pemex’s bond debt is due for repayment this year, with $18.7 billion and $7.7 billion due in 2026 and 2027 respectively. Pemex remains heavily leveraged, with a debt-to-EBITDA ratio exceeding five to one.
Then there is the geography. Most of Mexico’s shale gas is in the north, precisely where water is scarcest. The Burgos Basin is in a region where over 45% of aquifers are overexploited and rainfall is minimal. Climate change is making things worse. Water conflicts are already common in northern states, and Mexico remains in a delicate negotiation with the U.S. over its Rio Grande water debt. Fracking’s heavy water demands—millions of liters per well—will test local patience unless Pemex and its partners can deploy non-potable or recycled sources.
The economics are just as daunting. Fracking is not cheap. In the United States, production costs in the most efficient plays, like the Permian Basin, run between $31 and $42 per barrel. In less favorable geology, costs can climb to $58 or more, and in some newer plays, break even prices are $62, getting as high as $90. While these numbers can work when global oil prices are strong, they leave little margin when prices fall—a reality that has whipsawed the U.S. shale industry through repeated boom-and-bust cycles. Pemex, with its high operating costs and chronic inefficiencies, will find sustaining profitable fracking even harder.
All of this leads to a simple conclusion: authorizing fracking is only the first step. Without deep legal and regulatory reform, Mexico will not be able to develop an efficient, competitive shale industry. That means reopening the sector to greater and more profitable private participation, overturning recent legislative changes that have sidelined private capital. It means crafting contracts that attract investment while ensuring the state and local communities benefit fairly. It means deploying the best available environmental practices from day one—especially around water use—and setting clear, credible rules that give investors the confidence to commit for the long term.
Fracking is no silver bullet. It is expensive, politically controversial, and environmentally challenging. But it is also one of the few tools available that could both revitalize Pemex’s production and reduce Mexico’s dependence on U.S. gas. The Sheinbaum administration has taken the politically difficult step of reopening the door. Now it must summon the political will to walk through it fully—because without comprehensive reform, Mexico’s shale reserves will remain exactly where they’ve been for decades: underground, untapped, and unrealized.
Lead image: Photo © J. Carl Ganter
Published Aug 11, 2025
Duncan Wood publishes extensively on supply chain policy, critical minerals, Mexican politics and the broader US-Mexico relationship. He was vice president for strategy and new initiatives at the Wilson Center and directed the Center’s Mexico Institute from 2013 to 2020.