Mexico’s Pacific Coast could see more than one natural gas export project being developed in the coming years as Asian markets increase their appetite for imports of cheap and reliable U.S. gas via the shortest transport route possible.
Mexico Pacific Limited LLC’s (MPL) CEO Doug Shanda thinks his company’s liquefied natural gas (LNG) export project in Puerto Libertad, Sonora State, could make a final investment decision (FID) by the end of 2021, with first LNG shipped out in 2025, “right when the supply gap is forecasted to open up.”
Even as the LNG market has been slammed this year by the economic impacts of the coronavirus, Shanda cited research by Wood Mackenzie forecasting a global supply gap of 85 million metric tons/year (mmty) by 2030, driven principally by Asian markets.
“We have some really good momentum for us going on this year, we’ve made some great strides forward and have a lot of commercial momentum,” Shanda told NGI’s Mexico GPI.
He said the company has secured four memorandum of understandings (MOU) for offtake, with additional customers coming in.
“Asian countries don’t have indigenous resources and they’re really concerned about energy security. They like the fact that we are on the Pacific Coast. They want access to North American gas. They like gas out of the Permian. We de-risk their transport.”
MPL is authorized by the U.S Department of Energy (DOE) to re-export up to 12 mmty of natural gas sourced from the United States and transported through Mexico via pipeline.
The company also has an environmental permit to build a pipeline to the U.S. border, and is also considering expanding existing pipelines and building a lateral to Sonora Norte. The other option for feedstock gas is working with Comisión Federal de Electricidad (CFE) to acquire some of its excess capacity.
“In the project area there really is no gas sink beyond the CFE power plant that is adjacent to our facility that was converted from heavy fuel oil to natural gas in 2015,” Shanda said. “So the firm transport that CFE has contracted is only about 15% utilized and there is a lot of excess capacity that CFE holds.”
CFE has indicated recently that it would be willing to open up its capacity to private participants.
“CFE has gas that they pay for and don’t take. We have an opportunity to create a wonderful synergy with CFE and help the administration,” Shanda said.
MPL is in the process of converting their MOUs into binding offtake agreements. They have all their major permits save one; the pending Mexico export permit requires binding offtake contracts in place. “We expect our export permit in the first half of next year,” he said.
MPL is a few steps behind another LNG project in Mexico. This week, San Diego-based Sempra Energy sanctioned the development, construction and operation of the 3.25 mmty Energía Costa Azul (ECA) liquefaction plant in Mexico’s Baja California.
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Shanda said the project going ahead was evidence that the “current administration values and supports responsible private investment.”
Customers in Asia are actively seeking U.S. indexation for natural gas, Shanda said. “In their home countries gas pricing is based on a basket of pricing. The majority of their LNG is based on a Brent index. We allow them a U.S. gas index, so we offer them some pricing diversity.”
Shanda thinks there is ample space for two or even three projects in Mexico, along with LNG Canada, another project slated for North America’s west coast. “ECA is already sold out, they’ve sold all the capacity they plan to build which is great,” he said.
Mexico in September included a separate LNG project further down the Pacific Coast as part of a new public-private infrastructure plan aimed at jumpstarting economic activity.
The Salina Cruz LNG project in Oaxaca state would be spearheaded by CFE, which holds most of the country’s gas pipeline capacity.
West Coast projects also don’t inhibit so-called second wave LNG projects in the U.S. Gulf Coast, as these would be primarily focused on the European market, Shanda said.
Europe is the top destination for U.S. LNG exports currently. Offtakers have moved 200 cargoes to Europe this year, accounting for nearly half of the 461 cargoes that have departed the United States so far in 2020, according to NGI data.
“Asian buyers are concerned about the Panama Canal, it’s getting harder and harder to ship through the Panama Canal,” Shanda said, citing bottlenecks for LNG vessels and a preference for cargo ships over LNG.
Contrary to the anti-competitive discourse emanating from the highest ranks of Mexico’s government, Shanda said the regulatory environment has been favorable for MPL.
“It’s about creating relationships. We are routinely engaged with the various ministries. What we hear from the administration and ministries is good support.
“They tell us they like our project and see the benefits it can bring to Mexico and they have been very supportive of the project as is evidenced by the fact that we have all the major permits in hand.”
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