Mexico to Tender for LNG Imports and Terminal, with Peru Leading Gas Supply Contender

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Researched by Industrialinfo.com (Industrial Information Resources Incorporated; Houston, Texas). Targeting a total of over 70,000 MW of electrical generating capacity for availability in the country by 2012, Mexico is preparing a bidding process for imported LNG to contribute to the energy feedstock requirement of over 25,000 MW of new power plants that will come onto operation by that date. It is estimated that by 2012, the power generation industry will consume 45% of Mexico's total natural gas consumption.

In July or August 2005, the state power company, CFE, will release an international tender for the supply of 500 million cubic feet per day of LNG. Following the gas tender, the CFE will call for bids for the construction of a re-gasification terminal at the Pacific coast port of Manzanillo. The details of the gas supply contract will impact the design of the terminal.

The LNG supply contract is expected to be signed by CFE by January 2006, and there may be another round of bidding for a further 500 million cubic feet/day of LNG in the 2007 to 2008 period.

Peru is almost certain to win the first gas supply tender, as CFE's head of investments, Eugenio Laris, has been quoted as saying that the Peruvian pipeline from the Camisea gas field to the Pacific coast is an option that fits very well with CFE's needs. If Peru wins the bid, it will proceed with plans to build an export LNG processing terminal at Pampa Melchorita. In the meantime, the TGP transport company is discussing the movement of gas from Camisea's block 56 to the coastal liquefaction plant.

The incoming gas will feed new power plants being planned by CFE, which will come into operation after 2010. CFE's project finance department deputy development director, Alberto Ramos, said that 2,200 MW of new installed capacity is being planned for the states of Manzanillo and Jalisco. CFE's existing 1,800 MW power plant at Manzanillo will be upgraded to a combined-cycle plant and will use the imported gas feed with an enlarged power capacity. Any gas surplus to these regional power generation needs will be piped to the north and east of the country to fuel power generation.

With many international companies vying for positions in the Mexican gas import trade, CFE believes that the Manzanillo terminal will give it more control over supplies, when compared to plants being built by foreign companies that buy LNG on the international market and then sell it to CFE.

The Manzanillo terminal will start operation at the end of 2009 and will process enough LNG to feed 3,500 MW of power in the first phase.

Laris said that, with power demand growing at between 5 and 6 % per annum, CFE is planning to build more than sixty new power plants in the next ten years, and the majority of these will be gas-fuelled, with old coal-fired plants being closed down. In ten years time, CFE will be generating 50% of its total power output from natural gas feedstock.

Mexico's future LNG demand will depend on the success the state's oil company, Pemex, has in encouraging investment in expanding gas production in the Burgos basin gas field, Laris said. CFE is coordinating gas supply decisions with Pemex. Mexico has been importing an increasing amount of gas from the U.S. at market-related prices.

With discussions reported between the Peru LNG consortium and the Mexican state utilities, Peruvian-sourced gas is being eyed by a number of groups. The Camisea upstream consortium has agreed to supply the Peru LNG consortium with 620 Mf3/d for a period of eighteen years. The Peru LNG consortium is made up of Hunt Oil (Dallas, Texas) and SK Corporation(Seoul, South Korea), which are also members of the Camisea consortium, in company with the Algerian state oil company, Sonatrach, and Tecpetrol, and the group's leader, Pluspetrol, both Argentinian companies.

A mix of U.S., South America, and international companies, including Japanese investors, are also lining up for Peruvian gas supplies from Camisea. Other sources of LNG competing with Peru to supply Mexico include Malaya, Indonesia, and Australia, with Bolivia in the offing, once it has resolved political problems affecting the export of its gas reserves.

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