Application of Real Options with Stochastic Models for the Evaluation of Natural Gas Production Projects

Ponente(s): Luis Enrique Garcia Pérez, Dr. Muhammed Kashif

In the context of the nearshoring boom in the northeastern region of Mexico and the decline in national natural gas production that shows a production rate of -1.75% between 2000 and 2022 (SIE, 2024), it is urgent to invest in extraction infrastructure of natural gas to take advantage of this economic moment, as well as reduce dependence on imports and ensure energy stability. This study evaluates the feasibility of a natural gas production project in the Burgos basin using real options and the Least Squares Monte Carlo (LSM) method with a stochastic two-factor approach. The innovation of this methodology lies in its ability to provide a more precise evaluation in environments of high uncertainty, considering the operational flexibility to adapt to market fluctuations, which stands out over traditional methods such as VPN. The results underline the viability of the investment and the importance of promoting the development of energy infrastructure in Mexico.