LNG developers in Mexico face long road ahead

HOUSTON (ICIS)–Companies continuing LNG development activities in Mexico are likely to require a high risk tolerance and long-term engagement strategy to navigate the growing number of complexities in the country’s energy landscape.

Mexico’s state-run utility CFE has attempted in recent years to drum up support for its proposed LNG projects backed by the federal administration but has had to turn to the private sector to stay engaged in LNG opportunities because it lacks the expertise required to develop those major projects.

Private sector market participants must partner with the CFE because the company controls so much firm natural gas pipeline capacity and electricity generation in Mexico. Stable, cost-effective supply of both is required for the development of LNG projects.

CFE’s leadership is also influential within the current administration’s policy-making circles.

This situation means that it is a key stakeholder for many LNG projects. It has a track record, however, of bilateral agreements that appear to change and have a discretionary nature in practice.

US developer New Fortress Energy’s Pichilingue small-scale LNG project operations’ start and stop and the incorporation of bilateral negotiations for the developers’ Fast LNG Altamira project reflects this discretionary style. It continued even after Pichilingue’s commercial operations began. Neither company responded to comment but a Mexico-based market participant said the 145,000cbm Energos Grand began to supply CFE with gas near La Paz early on 29 May after a year without LNG supply to the small-scale Pichilingue terminal. This was not, however, immediately confirmed.

The Energos Grand is currently chartered by New Fortress, according to ICIS LNG Edge. It left Sabine Pass on 31 March and since its arrival near Pichilingue has loitered around the terminal.

REGULATIONS, PERMITS

Other obstacles or potential delays to announced project timelines include the latest proposed updates by energy regulator CRE to Mexico’s natural gas transport and storage tariff regulations as well as unclear permitting processes at other energy agencies.

There is still an opportunity for market participants to provide feedback during the comment period for the proposed regulations. Mexico’s natural gas association (AMGN) has already submitted detailed feedback.

The CRE’s previous proposed updates to gas regulations have in some cases been extended with productive dialogue between market participants submitting comment to the website of regulatory reform agency CONAMER and the CRE. CONAMER’s processes require CRE to respond to certain types of comment submitted by parties that would be affected by changes in regulation.

LNG developers active in Mexico are at various stages of obtaining permits from the US where most of their gas would have to be sourced to be competitively priced for their projects. That permitting process with the US Department of Energy is standardised with consistent, publicly-available updates.

The permitting processes at the various environmental and regulatory energy agencies in Mexico are in some cases less standardised.

Mexico LNG projects continue drawing interest despite complexities
Project	Announced Dates	Status	Observations
Fast LNG Altamira	Unit 1 start ramp up: Jul ’23	May ’23: company announced 90% Unit 1 progress; Units 2 and 3 pending negotiations	CFE is anchor customer; Units 2 and 3 pending bilateral negotiations
Energia Costa Azul (phase one)	Expected operational summer 2025	achieved FID; under construction, no major known delays	Fully contracted to Mitsui, TotalEnergies; Sempra has numerous MOUs with key stakeholder CFE
Vista Pacifico	awaiting FID	Feb ’23 MOU with CFE, Carso Energy for newbuild pipe to supply Sonora, Baja California, connect to Samalayuca-Sasabe and Sasabe-Guaymas systems	Some public statements that CFE could have percentage of LNG profit, LNG for Manzanillo but binding agreement has not been published
Saguaro LNG (Mexico Pacific LNG)	targeting FID on first two trains (4.7mtpa each) in 2023	Situation on final permitting in Mexico unclear; continuing commercial discussions on third train proposed for second phase (so far Shell signed SPA for 1.1mtpa, Exxon has option for 1mtpa from train 3); has 20-year offtake agreements with ExxonMobil (2mtpa), Shell (2.6mtpa), Guangzhou Development Gas Trading (2mtpa)	Offtake from first two trains at 70%; New pipeline in Mexico likely required, remains pending; Likely linked to ONEOK Saguaro Connector line which may make FID mid-2023, come online Q2 ’25
Amigo LNG	Q2 ’23: company target for EPC start for liquefaction plant marine facilities	awaiting FID; has DOE export authorisation	Obtained US DOE FTA, non-FTA export authorisation; Q2 ’26 is goal for commissioning, startup, first LNG shipment to Asia
Pichilingue (small-scale)	Commercial operations began Jul ’21	Import terminal; uses small-scale ISO flex concept; recent Energos Grand appears to be first vessel in at least a year	Operations appear at times to be subject to bilateral negotiations; gas supply intended for La Paz, Baja power plants especially during summer; not mentioned during most recent earnings presentation; New Fortress secured LNG supply for its regas terminals through 2027
Coatzacoalcos LNG	None	Issued call for expression of interest in Nov ’22 but no results published	Feedgas likely a challenge; CFE’s terms in expression of interest requirements also considered challenging
Source: Companies, ICIS, US Department of Energy (DOE)

These processes appear to also have become discretionary to a degree with market participants saying requirements and timelines are unclear.

Certain energy agencies like energy ministry SENER had to develop regulations for LNG export because it had no precedent for such activities. Mexico-based sources have previously said that others like CRE simply appear to have a discretionary pattern. The CRE’s full board of commissioners was appointed by the current federal administration, which has made its state-centric approach to energy policy very clear.

A recent court victory in Mexico against CRE’s permit processing practices has established a precedent that could help others attempting to move their permitting processes forward at the CRE. Taking such a strategy, however, may mean that attempts to engage other state-owned entities like utility CFE afterward for pipeline capacity could be met with resistance.

PROJECT OUTLOOK

New Fortress’ first unit of Fast LNG Altamira is scheduled for a July or August start with potential remaining for delays because of ongoing negotiations with CFE. This despite recently receiving a permit to export LNG from SENER.

Construction on US Sempra’s Energia Costa Azul (ECA), the only Mexico LNG export project to have achieved final investment decision (FID) thus far, appears to be proceeding as planned with no known interference, though local communities have been known to block energy projects near completion to extract further concessions from companies.

ECA and Sempra’s Vista Pacifico currently seem to be the furthest along in development followed by Mexico Pacific Limited’s Saguaro LNG, though feedgas supply, more binding offtaker agreements and several other key updates remain pending. Sempra has developed complex energy projects in the country including projects that were repeatedly delayed.

This situation suggests that maintaining longterm stakeholder engagement is essential especially during the period of transition coming for Mexico’s federal administration as it approaches presidential elections in 2024. Mexico’s president appoints the director of CFE, the energy minister leading SENER and CRE’s board of commissioners among other key energy and environmental agency heads.

Claudia De La Rosa