LNG exports from Mexico’s west coast.

Fuente: The Oil & Gas Year.

Josh Loftus, president of Mexico Pacific (MPL), talks to TOGY about why the company is establishing a liquefaction terminal in the country, the advantages and challenges of the project, and the state of nearby midstream and logistics infrastructure. MPL is a liquefaction company aiming to use modular technology to construct a facility in Puerto Libertad.

How do you expect the change in government to impact ongoing energy projects?
It’s still too early to tell. It’s understandable that the current government is going to ask questions about what has been done historically and what needs to be improved. However, we have not been heavily involved, as the new teams are still getting settled. We do think that our specific project aligns very well with the desire to utilise existing pipeline infrastructure while also not competing with existing power projects.
At the same time, part of being a global energy project is having certainty and consistency. We are hoping the new reforms and policies do not change and that they make sure transparency is maintained. That’s important to anybody doing any project of any type, and more so when considering the size and scale of energy projects in this country.

What is the driver behind MPL’s LNG project?
Today we are focused on LNG exports. The reason for this is simple. The LNG industry is booming, especially in Asia, where we are targeting buyers in Japan, South Korea and China. These countries represent roughly two-thirds of the world’s LNG consumption, and we are located at a shorter shipping distance than the US gulf coast.
Consequently, we have invested in an LNG export terminal, a 12-million-tonne facility in Sonora state on the Pacific coast. What is more, we are aiming to take an FID at 4 million tonnes. To do so, we need a minimal number of counterparties, which minimises the overall project risks. Lastly, we have the IEnova gas pipeline, which runs right next to our property and has supplied gas to the neighbouring CFE [Federal Electricity Commission] power plant, which has run on natural gas since 2015. These features give us a strong basis for expansion.

What are the benefits of developing a project of this magnitude?
For a project like ours, which is going to be project financed, it is important for us to have the scale and credit with Asian buyers. Once we reach a breakeven point, we will potentially be able to run cargos to other locations in South America.
As seen over the last year, there are people who are looking to do Baja repower as well, which could be a possibility. That would make a lot of sense, since we are producing LNG and they are importing it for FSUs or FSRUs. But, for the time being, that is not the core of our business.

What has been your experience in acquiring the necessary permits for this terminal project?
In terms of project specifics, we did a lot of permitting when we were a regasification plant in the mid-2000s, so we already had a baseline needed for LNG export. Moreover, we spent most of the last year and a half changing all those permits into ones for an LNG export terminal, leveraging our existing team and world-class external support throughout Mexico.
Permits can be a tedious process and each and every agency has different views on it. However, we already closed all big permits such as those from ASEA [National Agency for Safety, Energy and Environment]. On this note, we aim to continue down that path of permitting.

What environmental and operational challenges do you face in Mexico compared to other countries?
Every country has its own environmental concerns and logistical challenges. The biggest difference between Mexico and Canada is the fact that we already have a gas pipeline. Canada has very cheap gas, but it’s on the other side of the Rocky Mountains and generally not easily accessible on the coast.
Our project, with a pipeline in place, eliminates a host of those concerns while still offering the LNG shipping advantages of a Pacific terminal.

Is there enough midstream infrastructure available to ensure your project’s viability?
From a scale perspective, our 4 million tonnes can be achieved with the pipelines we have today. Future expansion will consider all options, in conjunction with our initial partners. That review will take into account sourcing gas from various US locations, including the Waha hub, currently the main source for CFE sourcing.

How well developed is port infrastructure at Puerto Libertad?
The port is a natural deepwater port, so from an infrastructure perspective, we don’t really need to do anything. In fact, that CFE plant ran on heavy fuel oil. For 30 years, the feedstock was brought in on vessels of sizes similar to LNG carriers. That stopped in 2015 when the natural gas line was opened.
It’s pretty easy for us to bring in ships to our own future jetty.
In regards to the port authority, infrastructure and the operations side of it, that will be a focus of the project as things progress, and we will be working with the port authority to understand what its capabilities are and what our needs will be. We have shipping studies currently under way for that purpose. Yet, the amount of vessels coming through is not that robust.

In terms of supply, what is your position towards securing natural gas feedstock?
Our aim is to continue to work with our buyers and continue to work with the midstream community in Mexico to figure out what’s the right balance. We have a lot of options for both sourcing and transportation. Gas pricing in the Permian and surrounding areas continues to be extremely attractive and all forward curves show that continuing for the long run.

What are MPL’s objectives for 2019, and what is your medium-term strategy?
2018 was a big pivot from our prior LNG import strategy towards LNG exports. In 2019, we are going to focus on finalising permits, continuing to work with our EPC contractors and getting our commercial contracts progressed.
Moreover, there are no Mexican LNG exports today, so we will be progressing slow and steady. The goal is to take pre-FEED later this summer. Lastly, in mid-2020, we aim to take an FID, as we are about 15-16 months away from becoming a construction project [as of April 2019].

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