Developers mull Mexican LNG export projects

14 July 2014 13:13 Source:ICIS

Mexico has been a growing LNG importer since the country’s first regasification terminal opened at Altamira in 2007. However, new pipelines linking the country to US natural gas supplies and energy reforms proposed by Mexico’s current government could revolutionise the domestic market.

Companies are now evaluating projects to export LNG from Mexico, opening a potential third frontier in the race to deliver North American shale gas to global markets besides Canada and the US.

Up until recently, oil and gas exports from Mexico have been the sole domain of state energy company Pemex. However, under new legislation proposed by the Enrique Pena Nieto government, private companies may, for the first time, be given the opportunity to export oil and gas, whether produced in Mexico or not.

As many as four separate LNG liquefaction projects are under consideration for Mexico’s west coast, with US-based power utility Sempra Energy behind two of the proposals, ICIS understands.

Similar to the projects proposed in western Canada and the US Pacific Northwest, these developers are hoping to take advantage of relatively shorter shipping distances to gas-hungry markets in Asia. Journey times between the west coast of Mexico and Japan are nearly half those for tankers coming from the US Gulf through the Panama Canal, according to ICIS estimates.

Sempra’s export plans currently centre on the Costa Azul import terminal on Mexico’s Baja California Peninsula.

“We are currently analysing the feasibility of adding liquefaction capabilities at our existing LNG regasification facility at Costa Azul. We expect to make a determination this year about moving forward with such a project,” a Sempra spokesperson told ICIS.

As a brownfield project, the site would enjoy significant cost advantages over greenfield sites proposed in both Canada and the US, Sempra LNG vice president Mark Snell said in a company conference call in March this year.

Sempra’s plans envisage installation of a liquefaction unit at Costa Azul to export up to 2mtpa of LNG. While the terminal is currently contracted to take LNG imports through to 2028, partners in the project, including Anglo-Dutch energy major Shell and Russian gas incumbent Gazprom, are understood to be open to plans to convert the terminal.

Natural gas is currently exported to northern Baja California from the US through pipelines that have transport capacity of 989 million cubic feet (mcf)/day, or 28.0 million cubic metres (mcm)/day, according to the US Energy Information Administration (EIA).

Competition in Sonora

Two other projects are proposed for the coastline of Mexico’s northwestern state of Sonora: one by Sempra and another by a Houston-based developer.

Sempra is currently developing a new 799km (496 mile) Sonora pipeline – with a capacity of 770mcf/day – linking the US transmission system at Sasabe, Arizona, to Guaymas, Sonora.

The capacity will be held by Mexican state power utility CFE, which plans to ramp up imports as part of the expansion of gas-fired power plant capacity.

CFE is likely to be given powers to commence gas sales on Mexico’s domestic market through the energy reforms currently being debated in the Mexican senate. This would enable Sempra to purchase gas for a greenfield LNG export plant on the Sonora coastline.

A proposal by Houston-based project developer DKRW has also evolved along similar lines, with a vision to procure natural gas from the new pipeline systems.

DKRW is understood to be planning an LNG export terminal with up to 4mtpa capacity close to the city of Puerto Libertad.

The company had previously secured permits for an onshore LNG import facility on the same site. The scheme was originally envisaged to import up to 1bcf (bcf)/day – or 28.3mcm – of gas into the Sonora region as well as southern Arizona, Nevada and California, before the North American shale boom changed the supply dynamics of the US market.

Pemex plan

A fourth project under consideration in Mexico is being proposed by Pemex. The proposed site is in the southwestern state of Oaxaca, close to the city of Salina Cruz, where Pemex currently operates Mexico’s biggest refinery.

The facility would export gas produced in Mexico, sourced from the country’s natural gas transmission system. Offshore natural gas fields under development in the Gulf of Mexico – such as the gas-rich Lakach field, which holds potential reserves of 850bcf – would be used to supply the project after being transported through the domestic Mexican pipeline system to the Pacific coast site.

Pemex is understood to be considering a floating LNG facility, as an option to keep costs down, sources in the Americas told ICIS.

More specific timelines for Pemex’s project remain ambiguous, however, given that the energy reforms currently being debated by Mexico’s government leave the exact future nature of the company uncertain.

“These types of things are moving slowly in Pemex,” one market source said. James Fowler

This story will be expanded and published as a Focus article later in the week.

By James Fowler