Mexico considers limiting LNG shipments to US

May 20, 2005 02:00 AM

Mexican Energy Minister Fernando Elizondo said the country is considering restricting the amount of LNG that can be received in Mexico for the benefit of US consumers.
"We don't want to be just a port of entry and transit that leaves us with the disadvantages and none of the advantages," Elizondo told a small group of reporters at a Latin American energy conference in La Jolla, California, organized by the Institute of the Americas.

Mexico is contemplating the incorporation of as many as nine natural gas receiving terminals on its Gulf and Pacific coasts in the coming years. The first facility is expected to start receiving the fuel by the end of 2006. Elizondo said that government officials are discussing the possibility of establishing a minimum percentage of LNG imports that must go to local populations.
LNG is a gas that has been cooled and condensed into a liquid form, allowing it to be transported in ships. At receiving terminals, LNG is unloaded and stored until it's converted back into gas form and transported via pipeline to customers.

Mexico has based much of its near-term electricity supply plans on natural gas, which burns cleaner than the fuel oil used to generate power in much of the country. Mexico has proven natural gas reserves of 20.4 tcf, although investment limitations have kept state oil company Petroleos Mexicanos, or Pemex, from being able to extract enough of the fuel to meet current and projected demand.
Pemex pays out around three-fifths of its revenue to the federal government for taxes and royalties, while foreign investment in exploration and production in Mexico's energy sector is barred by the country's constitution. Last year, Pemex produced 4.573 bn cfpd of natural gas while importing 765.6 mm cfpd from the US Mexico as a whole imports about 1.1 bn cfpd from its northern neighbour.

By developing LNG receiving terminals, the country hopes to obtain a reliable supply of natural gas while reversing the flow of natural gas between it and its northernneighbour. Some of the planned facilities are being built by the government, while others are private initiatives.
"Fortunately, this is an area where we can receive all the private investment we can get," Elizondo said.

Donald Felsinger, president of San Diego-based Sempra Energy (SRE), says Mexico has learned from the California energy crisis a few years ago when the country was cut off from US supplies, that it "didn't want to be at the tail end of the pipeline."
Sempra is building an LNG receiving terminal about 60 miles south of the California-Mexico border. The company expects the $ 800 mm Energia Costa Azul facility to start delivering about 1 bn cfpd to Mexico in 2008, with any excess supply heading to the US
"We look at Mexico as a lot safer place (to invest) than California. It's easier for us to go south to our neighbours," Felsinger said.

Some watchdog groups, though, are concerned that Mexico will accommodate LNG terminals that wouldn't comply with US environmental standards.
Elizondo points out that access to LNG will make electricity generation in Mexico significantly cleaner.
"Right now, electricity is being generated in (Pacific coast port town) Manzanillo with fuel oil, which pollutes, and boats show up with fuel oil that generate emissions," Elizondo said.

Australia, Bolivia and Peru are among the countries that have offered to supply LNG to Mexico.

Source: Dow Jones
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