Waitin' for the (Gas) - Mexico's Salina Cruz LNG Project Targets Latin American Buyers

Just a few years ago, Mexico was focused on importing LNG to help meet its natural gas needs, especially in parts of the country far from Permian and other U.S. supplies. Lately though, most of the talk about LNG in Mexico has been about liquefaction and/or exporting, not importing and regasifying, as evidenced by a final investment decision on the Energía Costa Azul liquefaction project in Baja California and progress on Mexico Pacific Ltd.’s liquefaction/export project in Mexico’s Sonora state. Both projects are aimed squarely at Asian markets, but yet another prospective LNG project “south of the border” is targeting bunkering, transportation, and industrial markets for natural gas along the Pacific side of Latin America — from Mexico itself down to Ecuador. In today’s blog, we discuss plans for what could be Mexico’s third major liquefaction project — this one aimed at both domestic and export markets.

It should be said up front: More often than not, developing an LNG export facility is an endeavor fraught with uncertainty, challenges, and setbacks. As we see it after years of tracking prospective North American projects, it takes nothing less than an alignment of the stars — and maybe a smidgeon of luck — for a project to proceed from concept to FID, construction, and operation. For proof, see our recent Only the Strong Survive blog series, which looks at what we consider to be the eight larger LNG export projects most likely to advance in the next year or two — and the characteristics that set them apart. In that same series, we also noted that only one North American project has achieved FID since COVID-19 upended the international LNG market in the spring of 2020: Sempra Energy’s Energía Costa Azul (ECA) project in Mexico’s Baja California region, which reached that critical milestone last November.

The ECA project, which we discussed in detail in Closer, has a lot going for it. Among other things, ECA’s 3.25-million-ton-per-annum (Mtpa) or 450-MMcf/d liquefaction plant is being built at the site of Sempra’s LNG import terminal in Ensenada (blue star in Figure 1), so the facility already has the docks it will need, as well as most of the pipeline interconnections that will enable it to receive natural gas from the Permian and other sources. Further, Sempra has lined up 20-year sales and purchase agreements (SPAs) with Mitsui & Co. and Total for 2.5 Mtpa of the project’s capacity. ECA’s biggest plus, though, may be its location on the Pacific side of Mexico, which means that LNG carriers heading to Asia — the biggest market for LNG — doesn’t need to pass through the oft-constrained Panama Canal or sail around Africa’s Cape of Good Hope. Direct access to the Pacific is also a major driver for Mexico Pacific Ltd.’s (MPL) planned liquefaction/LNG export facility in Puerto Libertad (green star), which is located in northwestern Mexico’s Sonora state on the Gulf of California, about 125 miles south of the Mexico-Arizona border. MPL’s initial plan calls for building two 4.3-Mtpa liquefaction plants (with a possible third plant later) and with each demanding about 600 MMcf/d of natural gas. Our understanding is that MPL already holds five memoranda of understanding (MOUs) for a total of 10 Mtpa, and that it is working toward converting those MOUs into binding SPAs. If all goes to plan — admittedly a big “if” in the topsy-turvy world of LNG project development — MPL would announce an FID by early 2022 and have the first liquefaction plant up and running in 2025.