The Comision Federal de Electricidad (CFE), Mexico's state power company, foresees the need for nearly 28,800 MW in new power generation capacity over the next 10 years, and between 12,000 and 15,000 MW of that is expected to be gas-fired combined cycle plant. Similar to its neighbor to the North, Mexico plans to rely on liquefied natural gas (LNG) from abroad to fuel at least some of that capacity.

Juan Granados-Zuniga of Mexico's CFE told a Houston audience Friday that his country projects annual growth in power demand of about 4.8%, leading to 321.7 TWh of annual consumption by 2016. While Mexico plans to continue a reliance on gas-fired generation, Granados-Zuniga and his countrymen have seen the writing on the wall when it comes to gas supply and prices.

"We need gas and we're buying from a country that needs gas itself," he told attendees at Platts Mexican Energy conference, referring to the "expensive" gas Mexico imports from the San Juan and Permian basins in the United States.

While Mexico's Petroleos Mexicanos (Pemex) has an abundance of gas reserves on and offshore, LNG still will be needed to fuel power generation. In part because Mexico would like to export some of its native gas to Central American markets that it hopes to reach through a new pipeline (see related story). Hence, Mexico is in the development stages for an LNG regasification project in Manzanillo, the output of which will fuel new and repowered gas-fired generation in the region.

Currently, as of June, Mexico is seeking bids for gas supply over a term of 15 to 25 years, as well as bids for the regas project. The first phase of the Manzanillo LNG project is expected to produce 500 MMcf/d by 2011, with a second phase to double that output. Gas not needed for power generation could be traded with Pemex, Granados-Zuniga said.

Locking up LNG supply for power is attractive for a number of reasons. For one, it allows the power plant projects to obtain financing more readily once they have gas supply under lock. A steady stream of gas-fired power will ensure availability of power in western Mexico, generated from gas obtained at a competitive price.

Australia, Bolivia and Peru are considered potential suppliers of LNG to the project, with Peru's Camisea gas field favored by some analysts because of its relative proximity to the regasification terminal. The supplier will be determined as a result of a tender parallel to the plant tender. Later, a third tender is planned for the construction of a pipeline from the regasification plant to the pipeline grid.

The existing power plant at Manzanillo is six kilometers away. The initial desire was to site the LNG facility closer to the plant, but the area is too populated for that. Granados-Zuniga said Mexico would like to see a port facility grow up around the LNG regasification terminal that would support regional industrial growth.

In June about 30 companies visited the proposed site. Numerous parties have expressed interest in supplying the gas or in the regas plant construction. Three bids to supply gas are expected and eight bids are expected on the regas terminal. Contracts are to be in place by June 2007.

The CFE is in the process of securing commitments from landowners to sell their land. It currently has 19 letters of intent to sell with five outstanding, Granados-Zuniga said. He added that the CFE would like to be a 20% owner in the regas terminal, possibly through a cash advance, deferred payment or infrastructure contribution arrangement with the facility's developer.

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