Suffering from a shortage of natural gas supply to meet the country's growing industrial demand, Mexico's Federal Electricity Commission said last week it has awarded Spain's Repsol YPF a $15 billion contract to supply liquefied natural gas (LNG) from Peru to a planned new Pacific coast terminal in Manzanillo in the Mexican state of Colima.

Under the terms of the 15-year contract, Repsol will begin supplying 90 MMcf/d in 2011, 180 MMcf/d in 2012, 360 MMcf/d in 2013, 400 MMcf/d in 2014 and 500 MMcf/d in 2015. Manzanillo is Mexico's busiest port.

The commission said the deal "guarantees supply" for the future at "competitive prices," which is essential during this time of high natural gas prices across the globe. Due to its natural gas supply/demand deficit, Mexico must augment its own production with more expensive imports via pipeline from the United States. The commission said its base price was 91% of the Henry Hub index and the Repsol bid is 3 cents below that, resulting in $85 million in savings over the life of the contract. Soon to be able to obtain cheaper gas by tanker, Mexico's demand for U.S. gas could decrease.

The commission said the LNG shipments will help power existing and future gas-fired power plants in western Mexico. Previously, the commission has noted that it plans to build a number of plants in the region to keep up with growing industrial and commercial power demand.

The need for more natural gas in Mexico was highlighted earlier this month when terrorists attacked the country's natural gas pipeline infrastructure by blowing up five gas pipelines and one crude pipeline (see NGI, Sept. 17). The loss of gas supply forced a number of industrial gas users to halt operations, including Volkswagen Mexico and Vitro, a glass-making corporation.

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