Mexican Sec. of Energy Felipe Calderon made a strong pitch last month for industry to build import terminals in his country as a way to secure LNG supplies into thirsty North American natural gas markets.
Promoting LNG makes sense for Mexico because it will encourage trade and give the country's two largest companies, both state-operated, more flexibility, he suggested.
Public utility Comisión Federal de Electricidad (CFE) will have more fuel choices for customers, and Petróleos Mexicanos can diversify its import sources, Calderon told an LNG ministerial summit Dec. 17 in Washington, DC.
Encouraging LNG terminal construction is one piece of a four-part strategy to guarantee gas supply, Calderon said. Mexican President Vincente Fox also wants to increase domestic production, expand border interconnections, and win over a recalcitrant Mexican legislature so it will pass energy reform legislation.
US reactions
With US natural gas prices still firm, US lawmakers are mulling hearings this spring on what future role Mexico and Canada will play in stabilizing an increasingly international gas market.
US and Mexican officials also pledged to encourage the use of LNG during the 34-nation Summit of the Americas conference held last week in Monterrey, Mexico.
Like the US, Mexico uses more gas than it produces. The country's gas deficit is now 700 MMcfd and will climb to 2.5 bcfd by 2012, according to Calderon. The energy secretary predicted that Mexico's gas production would increase to 6.82 bcfd in 2012 from 4.1 bcfd in 2002. Great potential remains. Only 19% of the onshore has been explored and a scant 4% of the offshore with natural gas potential has been looked at; the deepwater has not been explored at all.
Growing via drillbit
Analysts want more details on how Pemex plans to increase production; building reserves are a key challenge for the company and a key revenue source for the government.
"If only a small fraction of Mexican gas-prone real estate has been explored, what is missing, what does the Fox administration propose?" asked George Baker, who heads the consulting firm Mexico Energy Intelligence. "It is interesting that none of the Mexican deep water has seen a drillbit."
And as in the US, industries wanting to build LNG facilities in Mexico may be supported at the federal level but face challenges from local officials.
A proposed $558 million Marathon Oil Co. LNG project in Baja California, for example, was awarded a storage permit by the country's federal energy regulators. But the proposal still faces opposition from local communities and environmentalists.
Despite these challenges, Fox administration officials insist LNG terminals are poised to be bridges of supply to the US market. Industry is currently considering seven LNG terminals in four locations.
Calderon said that the proposed terminals could supply gas from around the world directly to southern and western US markets; LNG prices could be competitive with the Henry Hub index.