Mexican LNG Projects Moving Forward At Regulation Speed

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Researched by Industrialinfo.com (Industrial Information Resources, Incorporated; Houston, Texas). Although the practical progress and implementation of Mexico's energy plans have shown a degree of volatility, there are now a number of projects, which either have been given the go ahead, or are in the final stages of decision. These projects are spread across the oil, gas, and electricity sectors.

CRE, Mexico's energy regulator, has finally issued the first permit for the development of an LNG terminal to Marathon Oil (NYSE:MRO) (Houston, Texas), and its associates. The project involves the construction of an LNG gasification and storage plant near Tijuana, in Baja California state. Marathon plans a $1.5 billion "Tijuana Regional Energy Center" including the 750 MMcfd, LNG facilities, a 1,200 MW power plant and a 20 million gpd desalination plant to provide fresh water. These projects are spread across the oil, gas and electricity sectors. Marathon's spokesman said "This gas storage permit gives Marathon and its partners the necessary federal approval to offload LNG, and to regasify LNG at the proposed complex to supply clean-burning gas to regional markets."

A number of international majors and US companies have been vying for permission to build LNG plants in Baja California and it is thought that only two projects will be given the go ahead. So, with Marathon in control of the first project, Shell (LSE:SHEL) (London, United Kingdom), CononcoPhillips (NYSE:COP) (Houston, Texas), Chevron Texaco (NYSE:CVX) (San Samon, California) and Sempra Energy (San Diego, California) are all pressing their credentials for the second plant on CRE, and talking the walk.

Construction on the Marathon project is planned to start late this year with plant operations starting in 2006. Grupo GGS (Mexico) and Golar LNG (Bahamas) are Marathon's partners. GGS has been involved in airport, seaport, power generation facilities and gas distribution infrastructure projects. Golar owns six LNG vessels and operated another four. The company will take delivery of four newly built vessels by 2004.

Kellog Brown Root (NYSE:HAL) (Houston, Texas) will provide engineering for the center's offloading terminal, gasification plant, desalination plant, and natural gas pipeline infrastructure. KBR with Techint (Italy) will execute detailed engineering, procurement, construction, commissioning and testing activities.

Opponents of LNG terminals in Baja California, including business leaders and activists have protested that the plants will create eyesores in tourist areas and could prove to be tempting targets for terrorist attacks. Another pervasive Mexican worry is that domestic LNG plants, and other energy sources, will develop into a reservoir of power for the US market where customers will exploit the country's less stringent environmental enforcement.

Tractebel (Belgium) is negotiating for the purchase of a site for a $500 million LNG regasification project at Lazaro Cardenas in Mexico's Michoacan state. Talks are taking place with the Mexico's state oil company Pemex. Tractebel would use the Pemex pipeline for gas transportation in Mexico. The company is also in talks with 'viable suppliers' of LNG for the project. The company does not plan new power generating capacity at the site and will drive the project using the three local distribution companies and the combined cycle power plant they already own.

Tractebel plans to start construction in 2004 and operations in 2007/2008. They are seeking partners for the plant with upstream experience so that they can focus on the downstream market.

Mexico's Federal Electricity Commission (CFE) was to have announced the winning bid for the Atlantic coast LNG project at Altamira in April, but this decision has now been put forward to "summer." The proposed plant will supply fuel supply undertakings to the combined cycle power generating plants Altamira V, Tuxpan V and Tamazunchuale. Through CFE power from these plants would feed major plastics and petrochemical plants in the area owned by GE, BASF, and Petrocel-Temkex. Power could also be transmitted to the northern business capital, Monterrey and other regions of the country.

At the beginning of this year Shell, BP, Iberdrola (Spain) and other majors were interested in bidding on a contract in which the CFE would buy the gas output for 15 years and the suppliers would maintain the total price at a level below that which Mexico would have to pay for imported product. The Altamira plant would be required to supply up to 500 million cubic feet a day, which is worth around $3 million, tied to the New York Mercantile Exchange prices.

Shell appears to have assumed the lead of a posse of bidders and is inviting partners aboard after El Paso withdrew from a 50/50 partnership. El Paso has previously announced a corporate decision to withdraw from the LNG industry. Shell is looking at Nigeria as the prime gas supplier with Venezuela on the horizon. But the final decision is awaited.

Shell has the Mexican environment authority's (Semarnat) approval for a $600 million LNG project at Costa Azul on the Baja California coast but awaits OKs from CRE and the local municipality who, no doubt, also have other aspirant contractors whispering in their un-Shell like ears.

With gas imports reaching around 650 million cubic feet per day in the first quarter of 2003, which represents a 300% rise since 2000, there is a shortfall to fill. Development of Mexican domestic gas production is crimped by lack of investment and Mexico currently prohibits private companies from developing oil and gas reserves.

Expect the plot to twist and turn and develop by the end of 2003 with pressures sustained on the Mexican regulators by competing international energy companies including those based over the border, a pipeline away, in Texas.

Industrialinfo.com tracks industrial projects in Mexico as part of its North American Industrial Database