November 18, 2022

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Mexico LNG Sector Could Be Stymied By Supply Competition

Enthusiasm for developing an LNG export sector in Mexico was anything but universal at this week’s US-Mexico Natural Gas Forum in San Antonio, Texas. While US participants touted multiple plans for developing gas liquefaction and export projects in Mexico, many attendees from Mexico seemed lukewarm toward an LNG buildout.

The reason: it’s not apparent how Mexico benefits from exporting US gas from its shores as it struggles to develop its natural gas sector. And long-term, LNG could become an impediment to that effort.

There are compelling arguments for allowing spare capacity on the 5,000 miles of pipelines tendered by Mexico’s power utility Comision Federal de Electricidad (CFE) to be used transporting gas to LNG export projects. The same goes for CFE capacity on other private ventures such as the underused Sur de Texas marine pipeline.

CFE is paying for firm capacity on the pipelines whether it fills them or not, and many of the power plants the capacity was meant to supply are still in development or still burning fuel oil, which Mexico has in abundance.

But that is today, and future gas needs could be quite different as the value of the fuel becomes more evident, a Mexico City-based natural gas marketer told Energy Intelligence on the sidelines of the conference.

“I think the administration [of President Andres Manuel Lopez Obrador] has missed the mark in understanding that natural gas is very important for economic development. Gas has been neglected because it’s been seen as a byproduct of petroleum and not as the main event in Mexico," he said. "It's so under recognized that we're thinking about exporting our natural gas capacity instead of using it."

While he said filling CFE’s underused capacity temporarily with gas bound for export, he also worried about CFE not being able to recover that capacity when it’s needed.

"I hope they're going for a short-term contract," he said. "They still have a lot of things to figure out before actually closing long-term deals."

That need for firming up long-term capacity for export projects could be the Achille’s heel for developing a Mexico LNG sector, one speaker at the conference said.

The only project certain to come on line is Sempra's 3.25 million ton per year (0.46 billion cubic foot per day) Energia Costa Azul terminal in Baja California. It has a dedicated pipeline from the US that is not connected to Mexico’s gas grid, so is not usurping capacity Mexico would need for future development.

Consultant Guillermo Turrent, who served as Director of Modernization for CFE when it tendered the 5,000-mile pipeline grid after the 2013 Hydrocarbon Law was passed, told Energy Intelligence that the documents and contracts now guiding the current administration “stipulate exactly how that capacity was going to be used. And I can tell you this: right now it’s not for LNG.“

But this is not his major concern about building a LNG sector in Mexico wholly dependent on US gas imports.

“I think it's going to be very challenging because there are emerging conditions in the US that could prevent that gas from coming down to Mexico,” he said, noting that emergency situations in Mexico are also common that would require halting exports periodically.

“Is Mexico going to keep exporting that LNG or is Mexico going to keep that gas for its own needs and default on their LNG contracts overseas?” he asked. “I think it's going to be very, very difficult to project finance any of those LNG terminals out of Mexico just for the reason of security of supply.”

Tom Haywood, Houston

China's LNG Imports Decline for 10th Straight Month

China imported 4.03 million tons of LNG in October, a drop of 34% compared to the same month last year, according to the latest data from the General Administration of Customs. The country’s pipeline gas imports in October totaled 3.58 million tons, a 12% gain from from a year ago.

For the first 10 months of the year, China imported a total of 50.51 million tons of LNG, down 21.6% compared to the same period last year, as LNG receipts have fallen for 10 consecutive months. Meanwhile, China imported a total of 38.23 million tons of pipeline gas in the first 10 months of the year, up 11% compared to the same period last year.

High prices in the international spot gas market have dampened China’s demand this year. In the first 10 months, the cost of China’s imported LNG rose by 36.4% compared to the same period last year, and the cost of the country’s imported pipeline gas rose by 60.9%.

In order to secure China’s domestic natural gas supply, the country is continuing to increase its gas output. Shenzhen Gas announced on Thursday that it has decided to build the second phase of the gas storage expansion project, which is expected to invest 3.03 billion yuan ($ 0.43 billion). The project is going to build two 160,000 cubic meter LNG storage tanks with a designed turnover capacity of 2 million tons per year, which will meet Shenzhen's 30-day city gas emergency reserve demand after it is put into operation. Shenzhen has also previously issued a document stating its intention to build an international natural gas trading center.

The complexity of the international gas market this year has weighed on China’s winter supply to some extent, China's National Development and Reform Commission (NDRC) mentioned in a press conference Wednesday. During peak hours in winter, some areas may experience the tight supply. NDRC added its supporting China National Petroleum Corp., Sinopec, China National Offshore Oil Corp. and other upstream gas supply enterprises to increase storage and production.

A report by Wood Mackenzie notes that energy import spending in Asia has grown dramatically in 2022. The report also mentions that Chinese customers have switched to coal and fuel oil in the power and non-power sectors, which helped lead to a decline in China’s natural gas demand.

Although China is currently preparing for winter gas supply preservation, the decline in consumption also led to the delaying construction work in Northern China’s Tianjin city and Shandong province.

China's Gas Consumption
Domestic Production (Bcm)Y-o-Y %Chg.Total Gas Imports (million tons)Y-o-Y %Chg.LNG Imports (million tons)Y-o-Y %Chg.Pipeline Gas Imports (million tons)Y-o-Y %Chg.
Jan-Feb37.26.7%19.9-3.8%12.7-8.7%7.26.3%
Mar19.76.38.0-8.54.6-17.03.48.8
Apr17.74.78.1-20.34.4-34.53.79.3
May17.74.99.1-10.64.9-28.14.226.0
Jun17.30.48.7-14.64.8-26.03.911.5
Jul17.18.28.7-6.94.7-15.44.08.0
Aug17.06.38.9-15.24.7-28.14.19.0
Sep16.44.610.2-3.75.9-11.64.39.8
Oct18.512.37.6-18.94.0-34.03.611.5
Total178.56.0%88.7-10.4%50.5-21.6%38.210.6%

Staff Reports


In Brief

Freeport LNG Expects to Ramp to 2 Bcf/d in January

Freeport LNG said it anticipates resuming operations at its Texas Gulf Coast facility in mid-December and ramping up to 2 Bcf/d of production in January, subject to the company meeting regulatory requirements.

“As of Nov. 14, the reconstruction work necessary to commence initial operations, including utilization of all three liquefaction trains, two LNG storage tanks and one dock, was approximately 90% complete, with all reconstruction work anticipated to be completed by the end of November,” Freeport said Friday. “Proposed remedial work activities for a safe restart of initial operations have been submitted to the relevant regulatory agencies for review and approval.”

The company anticipates full production utilizing both docks in March 2023.

Freeport has repeatedly delayed a restart of its facility, originally set for October, confining 15 million tons per year (2.1 Bcf/d) of US gas to the domestic market.

Gary Kruse, managing director of research at DC-based consultancy Arbo, who closely follows US energy regulatory matters, told Energy Intelligence the likelihood of further delays has diminished.

“If they have submitted the work plan there should be time" for the Federal Energy Regulatory Commission and the Pipeline and Hazardous Materials Safety Administration "to approve it by maybe the first week of December and then for them to restart the facility as they describe it by early January,” he said. “Presuming the restart goes smoothly this looks reasonable.”
Everett Wheeler, Washington

Plaquemine LNG's Permit Exemption Being Challenged

Three environmental groups have sued the Louisiana Department of Natural Resources for exempting Venture Global LNG from having to obtain a coastal use permit for development of its LNG facility in Plaquemines, 35 miles south of New Orleans.

The Deep South Center for Environmental Justice (DSCEJ), Sierra Club and Healthy Gulf filed a petition last week for judicial review against the Louisiana agency after the regulators decided to exempt Venture Global. It was filed in the 19th district Louisiana State Court.

The groups say the plant's construction will destroy nearly 400 acres of wetlands that serve as a storm buffer for nearby communities. Without sufficient protections, a hurricane would release pollution into homes, businesses, farmland and coastal water, subjecting predominantly black and indigenous communities to the risks, they said.

"Venture Global is not above the law that requires companies to minimize harm in a coastal zone," said Monique Harden, assistant director of law and public policy at DSCEJ.

The Venture Global LNG terminal was sanctioned in May, not long after Venture Global’s Calcasieu Pass LNG terminal began operations in February.
Tom Haywood, Houston


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India16.9317.7516.6117.8115.6315.4919.0314.0618.8016.7815.0314.2815.16
Sodegaura, Japan15.9419.3419.3619.7115.486.0218.2612.2717.9320.5913.7211.2216.15
Zeebrugge, Belgium30.0325.7124.4426.0428.6729.5727.8524.4927.5024.6228.9026.2129.15
Huelva, Spain23.6319.5218.3119.8322.2321.5621.5318.0921.2218.4622.2819.4522.30
Isle of Grain, UK11.137.015.817.319.9010.689.365.858.735.9710.057.4910.28
Everett, US5.461.162.051.494.634.050.013.602.940.066.05----
Created with Highcharts 9.0.0($/MMBtu)QATAR TO NORTHEAST ASIANetbackNetback13. Jun27. Jun11. Jul25. Jul8. Aug22. Aug5. Sep19. Sep3. Oct17. Oct31. Oct14. Nov10203040506070Energy Intelligence

LNG Market Indicators

Spot LNG Pricing
Latest WGIDailyDaily Chg.Chg. From Latest WGI
NE Asia24.0021.56-0.32-2.44
SW Europe20.1024.390.024.29
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)----6.375.88
NBP, UK (futures)+0.4432.2931.8527.16
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF----30.2620.80
Zeebrugge (Belgium)----24.7012.11
German NCG----28.3621.93
NBP (UK)----12.3711.89
US Markets
US Spot Prices
Sabine Pass, Louisiana-0.136.076.20--
Corpus Christi, Texas-0.055.565.61--
Cove Point, Maryland1.168.227.06--
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month----6.375.88
Second Mth----6.746.26
Third Mth----6.496.02
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaJan '22Mar '22May '22Jul '22Sep '22Nov '220255075100125Energy Intelligence