Mexico bolsters LNG project portfolio with PPPs

Mexico's energy export outlook has recently been bolstered by a new set of early works projects, including those planned by Sempra LNG, New Fortress Energy (NFE) and public utility CFE.

With construction set to start later this year on LNG Alliance's Pacific coast US$2bn Amigo LNG project, pending construction permits, and with Sempra's own Energía Costa Azul terminal to begin operations in 2024, developers have shown interest in expanding the country's export activity due to the high international prices, coupled with Mexico's proximity to Texan gas, with available transport capacity in place.

The significant buildup of pipeline infrastructure between Mexico and the US over the past few years, coupled with a surge in natural gas demand from Asia and Europe (further fueled by the tensions between Europe and Russia, its biggest gas supplier) have dramatically changed the conditions of North American natural gas. With cheap gas available via pipeline, some developers see Mexico's potential as an export hub.

North of the border, development has been much more aggressive, however. US midstream players have scrambled to build new LNG terminals and utilize existing ones, leading authorities to approve 15 new projects and the country to export over 11.5Bf3/d during January-April, 18% more than the 2021 average, according to the US Energy Information Administration. Over the same period, LNG exports to Europe more than tripled.

In Mexico, the regulatory environment, which is seen as difficult to navigate, presents additional hurdles. However, several developers have bypassed the problem by developing projects in partnership with the state through CFE and national oil company Pemex. 

The latter seems eager to bring in private capital to develop key pieces of its long-term strategy and to increase utilization of its available pipeline capacity.

Among the projects that have recently advanced in Mexico is a second Pacific Ocean initiative by Sempra: the Vista Pacífico LNG facility in Sinaloa state. Coupled with the revival of the US$429mn Guaymas-El Oro pipeline project in the same state (a key step to feed the LNG facility) and a new regasification terminal in Baja California Sur, the project would both allow CFE to feed its planned natural gas generation capacity expansion in the isolated northern state and Sempra to export LNG abroad.

Sempra also recently added a second potential project: a planned LNG facility in southern Mexico (Salina Cruz, Oaxaca), which it said it was exploring in partnership with CFE. The state-owned firm has long had plans to build a trans-isthmus pipeline that would connect the Atlantic and Pacific, giving this project access to gas supply. The trans-isthmus pipeline itself would be fed by TC Energy's planned US$4.5bn Southeast Gateway offshore pipeline, also a CFE partnership.

New Fortress Energy also announced a US$2.2bn investment partnership with CFE that includes the construction of an LNG hub off the coast of Tamaulipas state, comprised initially of two floating LNG units with processing capacity of 1.4Mt/y each. CFE will be able to sell an unspecified amount of the project's LNG output, the company has said.

The agreement, which is still subject to a final investment decision, involves NFE providing the capital, while CFE will transport the natural gas to the site using its existing pipeline network. The project will target both exports and demand in Mexico.

This new bout of projects come to bolster Mexico's growing pipeline of LNG projects, which also includes Mexico Pacific's three-stage 14.1Mt/y terminal in Puerto Libertad, Sonora. With all relevant permits secured, the company has said it plans to make a final investment decision before the end of the year.

The Singaporean Amigo LNG project, meanwhile, also in Sonora, seeks to make use of existing pipeline infrastructure to import gas from the US and convert it into LNG for export through a large-scale facility involving 400,000m3 of gas storage capacity, as well as two liquefaction barges with capacity to process 7.8Mt/y (million tons per year) or 379Bf3/y (billion cubic feet per year).

Lastly, Sempra's flagship project in Baja California state, with France’s Technip appointed as the main contractor, is Energía Costa Azul, the only LNG project currently in construction. The 3.25Mt/y or 450Bf3/d liquefaction plant is being added to Sempra’s existing LNG import facility in Ensenada. Of the total, 2.5Mt/y of production have already been committed to Mitsui and Total through 20-year supply contracts.