Editor’s Note: NGI’s Mexico Gas Price Index, a leader tracking Mexico natural gas market reform, is offering the following column by Eduardo Prud’homme as part of a regular series on understanding this process.


As part of its effort to displace Russian gas, the Biden administration has committed to sending an additional 15 Bcm of liquefied natural gas (LNG) to Europe this year, or about the volume that is exported each day to Mexico via the Los Ramones pipeline system. By the end of 2022, U.S. LNG export capacity should reach about 14 Bcf/d, from about 13 Bcf/d now. Most spot shipments will find their way to Europe.

Before the war started, the target market for U.S. LNG was Asia. In the coming years, the combined demand volumes of Southeast Asia and China will grow to more than 160 million tons of LNG per year (mmty). Together with the mature markets of Japan, South Korea and Taiwan, demand is forecast to add up to 500 mmty in 2040. This LNG demand would be comparable to the consumption of the United States today, which is around 67 Bcf/d, or some ten times the amount that Mexico imports from the United States. Not all of this LNG will be sourced from North America. LNG projects in the Middle East have a logistical advantage. But the crisis of the Ukrainian conflict opens up opportunities, while also demonstrating that long-term contracts that anchor infrastructure make for a rigidity that affects energy security.

Operational and contractual flexibility brings with it improvements in continuity and attractive arbitrage opportunities. The North American region offers coasts that serve distinctive markets: the Pacific, which could feed Asia and the Atlantic, with Europe as the principal destination. But currently export capacity is concentrated in the Gulf of Mexico. This, despite signs of appetite for natural gas produced on American soil by Asian consumers, and the bottleneck of the Panama Canal.

This opens up a market opportunity for LNG projects on the Pacific Coast. The Panama Canal shows significant signs of congestion, with a 30% increase in the transit of tankers in 2021. If LNG could set sail from Pacific ports, that’s 12 days saved before the journey begins. A massive resource in Waha is almost equidistant from Corpus Christi and Puerto Libertad in Sonora, meaning the potential margins justify the deployment of not one but several liquefaction projects on the Mexican Pacific.

The recent expansion of the Mexican gas system means numerous routes with a combined capacity of around 6.5 Bcf/d to the Pacific. The truth is that this season, gas flow that crosses Chihuahua is only worth about 1.4 Bcf/d. Only 350 MMcf/d of natural gas goes through Baja California. Although there are times of the year when these levels increase significantly, in round numbers, the typical aggregate capacity use of this regional network operated by Infraestructura Energética Nova (IEnova), TC Energía, Fermaca, Grupo Carso and Cenagas, does not reach 50%.

But this could change quickly. Mexico Pacific Ltd’s recently announced LNG project in Puerto Libertad could reach a whopping 28 mmty, or over 3 Bcf/d of capacity. The Topolobampo project is slated for 3 mmty, or 400 MMcf/d. In principle, the 4 Bcf/d these projects need seems to have room in existing pipelines given the fact that Comision Federal de Electricidad (CFE) uses only a fraction of the capacity. However, the interconnections and configurations that result from the coordination of different operators make it difficult to put 1.1 Bcf/d on the Pacific coast. There is slack that could be taken advantage of, but it is not enough to feed strategic export projects. So far there has been no announcement to ensure firm capacity to feed the export projects in Sonora and Sinaloa.

So without reinforcement of existing transport, the new liquefaction capacity planned won’t be feasible. In the case of the Energía Costa Azul liquefaction plant in Baja California, the plans for an initial 3.35 mmty with an expansion to 12 mmty would require 1.5 Bcf/d of gas transport capacity. This project includes a $400 million investment to build new transportation capacity in Baja California and will necessarily involve expansions at North Baja along with capacity swaps at El Paso Natural Gas pipeline. Although it involves reaching agreements with multiple agents, this project has a significant advantage over the plants to be built in Puerto Libertad and Topolobampo because its development is largely independent of CFE.

The Mexican government has not hesitated to use the idea of LNG projects as an opportunity to boost other projects in the Mexican energy industry. Despite the fact that CFE has said it will collaborate with IEnova in the construction of the plant in Topolobampo, the truth is that the government’s efforts have not been tangible. The president has little interest in seeing Mexico’s Pacific Coast as a key region for global energy security. He gives higher priority to his Salina Cruz project. This insistence occurs despite its obvious operational infeasibility and the increased cost of the supply chain compared to other projects. 

The sector regulator could well take care that the layout of new routes and the design of connections is not only conducive to LNG plants, but also promote conditions that favor open access and the creation of market centers. The Energy Ministry should design guidelines for export permits that prioritize supply to national consumption in the case of situations of vulnerability. But these ideas are not considered by anyone in the government in a public way. Both the United States and Mexico could well design a joint energy security policy in a troubled international scenario. In this political climate, it would be a fortuitous situation for the government to take support measures to open doors to the Asian market.

Prud’homme was central to the development of Cenagas, the nation’s natural gas pipeline operator, an entity formed in 2015 as part of the energy reform process. He began his career at national oil company Petróleos Mexicanos (Pemex), worked for 14 years at the Energy Regulatory Commission (CRE), rising to be chief economist, and from July 2015 through February served as the ISO chief officer for Cenagas, where he oversaw the technical, commercial and economic management of the nascent Natural Gas Integrated System (Sistrangas). Based in Mexico City, he is the head of Mexico energy consultancy Gadex.