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One Year After Russia’s Invasion of Ukraine, Mexico’s Plans Have Shifted to LNG
A year since Russia’s invasion of Ukraine altered the energy landscape across the globe, Mexico’s natural gas model has been transformed.
As the world’s biggest consumer of U.S. produced natural gas, Mexico has set its sights on using its geographic position to its advantage. By importing natural gas from the U.S. at the cheapest prices available in the world, Mexico now has big plans to export the molecule across the planet in the form of LNG to supply markets in need, such as Europe or Asia.
To date, Mexico has announced plans to develop eight liquefied natural gas terminal projects with a capacity to produce some 50 million tons/year of LNG and export as much as 7 Bcf/d. If the plans materialize, Mexico could become the world’s fourth largest LNG exporter, behind the United States, Australia and Qatar, according to calculations from Bloomberg New Energy Finance.
Just a few weeks ago, in early February, Mexico Pacific Limited LLC (MPL) and ExxonMobil LNG Asia Pacific announced the signing of two 20-year offtake agreements for MPL’s Saguaro Energía LNG export terminal proposed for Puerto Libertad in Mexico’s Sonora state. Gas would be supplied from the Permian Basin to consumers in the Asia-Pacific region.
Will Mexico Benefit?
As Mexico’s ambitious LNG plant development projects move forward, some members of the energy industry remain skeptical that the country’s role as re-exporter will provide long-term economic benefit for the country.
“Mexico won’t benefit from these projects,” Norberto Catalán, Director of Trading and Origination at Énestas, an electricity and natural gas boutique trading shop located in Mexico City, told NGI’s Mexico GPI. “All of these LNG projects are extensions of the projects in the U.S. to send gas to Europe or Asia.”
Catalán thinks that all of the proposed LNG projects in Mexico can’t be developed at the same time because the country currently doesn’t have sufficient infrastructure nor the available capacity in its pipelines to ship gas from the Permian basin to the Pacific region of the country.
He added that the LNG projects planned for the Pacific will face more development obstacles than the plants being developed in the Gulf of Mexico by the Comisión Federal de Electricidad (CFE), which he considers more viable.
“What is offered here is that these projects can receive faster regulatory approval in Mexico than in the U.S.,” Catalán said. “They are looking to apply the local regulation in Mexico to be able to send LNG quicker without having to deal with the Federal Energy Regulatory Commission, for example. This is to benefit the U.S., not Mexico.”
To be sure, many of the LNG projects planned for Mexico have been under evaluation for years now. But Russia’s invasion gave them an extra push, and added new projects to the list.
Among the flurry of new deals signed since last February, New Fortress Energy Inc. (NFE) recently finalized a series of LNG agreements with CFE.
The companies are developing a floating liquefied natural gas (FLNG) export hub off the coast of Altamira in Tamaulipas state. NFE has committed to deploy multiple FLNG units with regasification capacity of 1.4 million metric tons/year each. Plans are for CFE to deliver the required feed gas under a 15-year supply contract, utilizing excess capacity on the 2.6 Bcf/d Sur de Texas-Tuxpan offshore pipeline.
CFE is the anchor shipper on the 478-mile, 42-inch diameter pipeline that stretches from Brownsville, TX, in the United States to Tuxpan, Veracruz, in Mexico.
CFE is also planning to hold an auction to tender the future construction of an LNG plant in the Mexican gulf port of Coatzacoalcos. Capacity would be up to 600 MMcf/d. This would replace a previously announced plant set for Salina Cruz, on the Pacific coast, in order to meet growing demand for natural gas in the European market.
Some veteran industry experts such as José María Lujambio, partner and energy practice director at Cacheaux, Cavazos & Newton, think the plans are a win-win for the United States and Mexico. He told NGI’s Mexico GPI that the development of LNG export plants was “a great move” for the long-term.
“It’s great that the CFE has announced new infrastructure projects and that they are developing works that connect ports and will allow for the country to take advantage of opportunities in the LNG market,” he said, while expressing “conflicting feelings” about how some of the deals were awarded.
Officials at CFE have said that they see LNG export projects as an opportunity to take advantage of unused capacity on cross-border pipelines. One project, at the offshore Lakach field, would also use domestic gas for exports.
As the LNG plant projects continue to unfold in the final year and a half of the Andrés Manuel López Obrador administration, members of the international energy industry will have their eyes on Mexico and the follow-through of its ambitious LNG plans. To date, only one project is certain: Sempra’s Energía Costa Azul in Baja California state, which could come online in 2025.
NFE is bullish that its FLNG projects could come online even sooner. But a lot remains to be done.
“Projects that combine upstream natural gas reserves in the U.S. with cross-border and domestic Mexican pipeline capacity, topped by new LNG projects and infrastructure, are gaining attention,” researchers Jeremy Martin and William Lozano wrote in a recent report titled US-Mexico Natural Gas and LNG Collaboration published in The Wilson Quarterly. “These increasingly integrated projects could offer a unique form of bilateral energy cooperation for North American natural gas molecules to compete globally.”
At the same time, the authors cautioned that execution of these ambitious projects will present a challenge.
“As with any major capital-intensive infrastructure, there is no guarantee that all these LNG projects will ultimately be built,” Martin and Lozano wrote.
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