News that Mexico's government is serious about a second liquefied natural gas (LNG) receiving terminal on its western coast is roiling the global LNG trade and giving heartburn to global industrial/energy giants as supplies are scarce.
The development of a LNG terminal that can process up to 1 Bcf/d at the Pacific Coast port of Manzanillo, with connecting pipelines heading north to the growing greater Guadalajara metropolitan area, is just the tip of the iceberg regarding long-range LNG development in Mexico and throughout the Pacific Rim, according to a consultant following Mexico's oil and gas developments.
Closely tied to the Mexican LNG situation is its federal electricity supplier, Comision Federal de Electricidad (CFE), which is building new natural gas-fired generation, and converting old oil-fired plants to combined-cycle gas facilities in all of Mexico's burgeoning industrial areas and population centers. The Mexican constitution states that the federal government is responsible for the control and development of the national electric industry, and CFE carries out this mission.
"The primary customer is obviously the electricity sector here," said a Mexico City-based oil/gas consultant with ties to U.S. sources that track energy developments south of the border. "The big issue right now is the fact the CFE hasn't been able to find enough gas because there have been a lot of problems at the supply sources, especially in Russia [as evidenced by the delays by Shell and the Russians in producing Sakhalin Islands supplies]."
"There are big problems with the gas for Sakhalin. Part of the problems [which reportedly are physical, financial and legal] is that in Asia there are big problems with gas supply, and new LNG projects are not coming on stream in Australia and Indonesia. They're all being delayed, as is Sakhalin.
"CFE is working with various suppliers of natural gas, but the problem so far has been that there are not enough volumes available for 2010, which is when CFE needs it. That is the critical date. There is not enough natural gas in the world to supply the additional 500 MMcf/d [of LNG needed at the proposed Manzanillo site]."
What is needed is another deal like the Spanish oil/gas supplier Repsol has cut -- 500 MMcf/d equivalent of LNG from Peru, or $15 billion during the 15-year life of the deal. With Sempra Energy's North Baja California LNG terminal set to begin commercial operations in the first half of this year, a second LNG receiving terminal, perhaps by 2012, emerged last Monday in Mexico City where a Mexican federal electricity official said he expects at least three major international companies to bid on building a LNG facility at Manzanillo, the nation's busiest port located southwest of Mexico City. Bids are due Thursday (Feb. 7).
The LNG supplies initially are mostly to help convert an older, oil-burning power plant in Manzanillo, a resort city in the state of Colima, and longer term much of the gas will be carried by a new Manzanillo-to-Guadalajara pipeline, serving growing industrial load along the route as well as in Guadalajara, which is about 100 miles to the north.
While the Mexican government wants to clean up the skies of Manzanillo to help encourage more tourism in a city that was once the pristine setting for the 1979 movie 10 with Bo Derek, there is a second driver for the plant, and that is getting more gas to fuel the industrial growth along a corridor that runs north to Guadalajara.
A pipeline to the north will also help fuel the infrastructure of Mexico's federal electricity provider, according to Houston-based Mexican energy watcher, George Baker. "And the idea also is to promote natural gas use by industry all along the way." Repsol is part of an international consortium developing LNG supplies in Peru.
Spain's Union Fenosa SA, that nation's third largest electric utility, and Japan's Mitsui & Co. and Mitsubishi Corp. were reported to be the three companies seeking to build the Manzanillo terminal. The Mexico City consultant, who has published a private report on the potential power generation and industrial gas markets in the Guadalajara-Manzanillo region, thinks Mitsui has the inside track because it has claim to large gas supplies in the Pacific Rim that could be moved to the second proposed western LNG site in Mexico.
"There are about three or four very interesting projects going on in Australia that could provide enough gas for the Manzanillo project," the source said. "In my opinion, they have a very good chance of winning the bidding. They are already partners with Shell in the Timor Sea [offshore gas fields off the Northwest Shelf of Australia]."
Manzanillo plans for LNG, related pipelines and connected power plants are a key to the federal government's overall energy structure, carrying ramifications for the nation's eastern and northern regions, said the consultant, whose studies have tracked the potential domestic gas load along the proposed 180-mile (290-kilometer) Pemex pipeline from Manzanillo to Guadalajara.
With laterals added, more than 218 miles (350 kilometer) of pipeline could be built, he said. Potential industrial load measured last year is approximately 400 MMcf/d, but by 2015 it is expected to reach 450 MMcf/d.
"This implies that the actual 500 MMcf/d already contracted between CFE and Repsol will only be enough to supply CFE's electric generation load, leaving no room to cover the potential industrial demand," the source said. "Therefore, the pipeline and LNG regasification plant systems must be sized for at lease 1 Bcf/d."
The consultant's report said the area's only existing power plants are in Manzanillo (2,000 MW capacity); however, CFE plans to build two 550 MW plants in Guadalajara, a city of 1.5 million with a metropolitan area of five million, which has no local power generation plants currently. The new plants are expected to be online in 2010 and 2011, requiring up to 170 MMcf/d of Repsol's initial 500 MMcf/d.
The proposed Manzanillo LNG terminal is slated for a lagoon area about eight miles north of the existing busy cargo-carrying ship harbor and pleasure boat marina that makes up the Mexican West Coast's largest port. CFE is requiring that the terminal be at least 1 Bcf/d in size.
The project, which is expected to provide about 4.4 million metric tons of LNG annually to Mexico's West Coast was approved early last year to proceed under the international group, including Hunt Oil and Korea's SK Corp., along with Repsol.
Under the terms of Repsol's 15-year contract with Mexico, the Spanish energy company is supposed to 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.
Although rich in oil/gas supplies, Mexico has long had to import gas because most of its gas production is reinjected into the ground to help produce the more profitable oil reserves. None of the LNG slated for Manzanillo is ever thought to be a candidate for anything other than regional markets within Mexico, the consultant said.
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