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Mexico Long-Term Market for Shale, LNG, Sempra Exec Says

Underscoring what a Canadian research firm said earlier in the month about North American shale and Mexico's growing gas demand, Sempra Energy's top gas executive told NGI's Shale Daily that a strong economy and growing natural gas demand make south of the border an attractive future market for ramped up shale gas production.

Sempra LNG CEO Darcel Hulse added the thought that what eventually will be three liquefied natural gas (LNG) receiving terminals makes added gas imports an alternative supply source, too. Power generation by the state electric operator Comision Federal de Electricidad (CFE) is a major part of the gas demand growth as evidenced by a new 200 MW gas-fired power plant that CFE is planning on land it owns adjacent to Sempra's Energia Costa Azul LNG terminal on the Pacific Coast of North Baja California.

More than shale or imports, Hulse thinks the economy is having the biggest impact on Mexico right now as the peso has strengthened against the dollar. "It always comes back to the economy -- supply and demand," he said. "We need to help gas supply drive those markets."

Barring another Mexican revolution, a 72-year-old constitutional barricade against foreign investment is bound to keep the country's own gas supply well below growing demand, according to a report issued earlier in December by the Fraser Institute (see Daily GPI, Dec. 13). This means Mexico is emerging as an outlet for North America's abundant shale gas production, the report said.

In looking at this scenario, Hulse said it should be kept in mind that Mexico's gas market has two distinct parts that are not interconnected -- Baja California, where Sempra's LNG terminal and North Baja Pipeline operate, and the whole mainland, which has the existing Altamira LNG terminal on the Gulf Coast and a new facility under construction on the west coast at Manzanillo, near the population center of Guadalajara.

"There is a lot of gas in North America that could come to Mexico," Hulse said. "But there are also three LNG terminals, so I think Mexico's supply-demand picture could easily meet the demand  growth both from indigenous production and imports."

When Sempra's Cameron LNG terminal in Louisiana gets its export license, could it reexport some of those LNG cargoes to Mexico? Hulse doesn't see that as a "long-term, viable option," and he downplays the export option, saying it only pertains to a few cargoes possibly, nothing like a long-term steady supply.

Hulse said Mexican officials recognize that they need to attract and free up more investment for the state-owned oil/gas producer, Pemex, but there is still a debate ongoing of how best to do that. At the same time he deflects suggestions that the ongoing drug wars in Mexico may be holding back this investment.

"As an operator of a facility in Mexico we recognize those issues, but Mexico is not all drug wars. The nation is made up of a lot of good, decent people like we find in all other countries. They are trying to do the best for their country with what's going on." He said Mexico has "great potential -- natural resources and wonderful people," and he said it will get through the current crisis.

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