Natural gas opportunities abound in CentAm, Caribbean

Monday, January 30, 2017

Central America and the Caribbean have begun a shift away from oil-based fuels for power generation and toward cleaner, cheaper natural gas.

The shale gas boom in North America has allowed LNG-to-power projects to materialize in the Dominican RepublicPanama and Jamaica.

In a 3Q16 earnings presentation, US-based LNG exporter Cheniere Energy included El Salvador, Cuba, Panama, Jamaica and Colombia in a group of likely emerging markets, joining recent market entrants Puerto Rico and the Dominican Republic.

Meanwhile, private sector firms are negotiating a gas pipeline from Mexico to Guatemala that will potentially extend to Honduras and El Salvador as well.

BNamericas spoke to Ariel Yépez, energy division chief for the Inter-American Development Bank (IDB), to get the latest on the subregions' pivot towards natural gas.

We last spoke to Yépez about this topic in April 2015.

BNamericas: What's the latest on the proposed Mexico-Guatemala natural gas pipeline?

Yépez: The last important change was that the Mexican government reclassified the pipeline from being a social project to a strategic project. Whereas before, the project had to be subsidized in some way by the government, it can now be carried out completely by the private sector without any kind of support.  

There's a private sector firm in Mexico – which I can't name – that is dedicated to building gas pipelines and is interested in developing the Mexico stretch of the pipeline from Salinas Cruz to Tapachula, 10km from the Guatemala border.

The idea is that this pipeline would provide gas to Tapachula in southern Mexico, above all to a gas-fired power plant that is planned for Guatemala. If the pipeline is built and extends to [Tapachula], it will then be easier to extend it to Guatemala and, eventually, Honduras and El Salvador.

There is now demand in both Guatemala and Honduras for gas-fired power generation, which makes the pipeline project more attractive than it was two years ago.

BNamericas: Can you say the name of the firms planning the gas-fired plant in Guatemala?

Yépez: I can't, because so far they have only signed MOUs, and are under confidentiality agreements. But I can say that they are private sector firms interested in the construction of combined-cycle gas plants, and that the gas supply would come from the Mexico pipeline.

BNamericas: What needs to happen for the Mexico section of the pipeline to go forward?

Yépez: More than anything, the companies need to agree on the terms and conditions of the gas supply contract to determine whether it's a good deal for the company developing the combined-cycle plant in Guatemala.

BNamericas: In a recent presentation, US LNG exporter Cheniere identified Panama, Jamaica and El Salvador as potential new LNG markets. What needs to happen for this to become a reality?

Yépez: It's already happening in Panama with the AES project [AES Corp.'s Colón LNG-to-power initiative], which is already under construction. AES is not just interested in the plant to supply gas to Panama, but rather with a more strategic vision to turn Panama into a regional gas distribution hub.

The other place where it's already happening is Jamaica. The American company Fortress Group won a [contract] to supply LNG to two different points in the country for power generation. This is very important for Jamaica because it reduces their consumption of oil-derived products. Also, it allows them to take advantage of the LNG boom in North America.

BNamericas: It sounds like there should be plenty of opportunities to invest in gas-fired power plants in Central America and Caribbean over the coming years.

Yépez: Exactly, especially in the three countries that we discussed earlier: Guatemala, El Salvador and Honduras. In the Caribbean, eventually we are going to see, with the entrance of Fortress in Jamaica, whether that country can become a hub to export LNG via barge to the rest of the Caribbean. But this remains to be seen.



About Ariel Yépez

Prior to joining the IDB, Ariel Yépez worked as senior energy economist at the World Bank. Yépez has also served as general director of revenue policy in Mexico's finance ministry and deputy director of economic planning at Mexico's national oil company, Pemex.

About the company

The Inter-American Development Bank provides financial and technical support to countries in Latin America and the Caribbean working to reduce poverty and inequality.