LNG: Mexico Pacific Benefits from Rising Demand

GNL_EnergyNews

Mexico Pacific Ltd is building an LNG export terminal on the Pacific coast of Mexico. The company has sales contracts with Asian customers and plans to begin “significant” construction as early as June before its final investment decision. That’s according to Sarah Bairstow, Mexico Pacific’s sales manager, in an interview.

Mexico Pacific adapts to global demand

The private company would use U.S. feed gas to produce its LNG. In addition, it is primarily aimed at Asian utilities and other end users. Mexico Pacific has spent more than 18 months quietly building the business support it needs to move into project construction.

Based in Houston, it is building a 14.1 million ton per year LNG export project in Puerto Libertad, Sonora. This will give it direct access to customers in North Asia. This, without having to pass the cargo through the Panama Canal, with a fraction of the transport distance.

In addition, the Mexico Pacific project includes three trains of 4.7 million mt/year each. In addition, it is on track to achieve a formal FID in the second half of 2022 for its first two trains for which it has finalized sales contracts with Asian LNG importers, Bairstow says at the World Gas Conference 2022 in South Korea. She adds:

“We’ve certainly noticed a real shift in customer requests for contract acceleration and I think a lot of that has been driven by concern from Asian buyers [concernant l’approvisionnement à long terme].”

European energy security restructured the markets

“Energy security has always been of paramount importance in Asia. And now we’re hearing it in Europe. Europe hasn’t contracted significantly yet, but I think the Asian market sees it coming. So we’re seeing this acceleration of wanting to lock in volumes before Europe enters the market in a big way, which is natural but obviously beneficial for projects like ours that are largely Pacific-facing,” Bairstow says.

U.S. LNG projects have finalized several long-term sales agreements with Asian customers. And in particular with Chinese buyers in recent months. This is due to the soaring prices and the conflict in Ukraine. In short, this situation has allowed several projects to move forward.

Significant competition in the LNG market

Mexico Pacific had the option of taking an IDF on a single train. However, because of all the buyer activity, she was able to speed up Train 2. This allowed him to start construction earlier.

In April, China’s Guangzhou Development Group, an electricity and natural gas supplier owned by the Guangdong provincial government, said it had signed an agreement to buy 2 million tons per year of LNG from Mexico Pacific for a period of 20 years.

Bairstow says the project had been successful in “attracting the largest and most established buyers in the LNG market.” “So we haven’t really penetrated the emerging markets yet,” she said. Adding that there were enough clients taking large volumes among the more traditional Asian buyers and portfolios with large positions in Asia.

European buyers are making a comeback

Bairstow points out that for Train 3 volumes, Asian buyers are now competing with European buyers. These are portfolio players and, after returning to the table, have asked to catch up in the negotiation process. They have a real priority on supplying Europe. However, many of them have historically had positions in Asia where all the demand is. Bairstow estimates:

“So now that they’re looking to pull cargoes into Europe, they really need to fill the positions that they have in Asia, and they’re basically long-term short positions. It’s really interesting to see players that were very quiet in the market over the last year come back into the equation, even for Asia-Pacific demand.”

Mexico Pacific tries to stand out

Sarah Bairstow explains that Mexico Pacific had decided not to enter the gas and LNG trading space as some of its LNG exporting counterparts in North America have had to do to sell their volumes. She adds that the company did not need to engage in price negotiations. This is due to the competitive pricing of LNG in North America. Also, the talks focused on the more qualitative aspects of the buyer and on the question of who can actually conclude a contract before the other.

Other factors in the contracts include the authenticity of the LNG demand. Like ensuring that procurement plans are real and not speculative purchases or a commercial hedge. We need a real coverage of the internal market, of the national energy security.

Bairstow is amazed at how many clients ask, “How quickly can you do it?” Unlike 12 months ago. Each Mexico Pacific contract is for 20 years.

“When Europe enters the market, it will completely disrupt the availability of long-term LNG supply.”

She added that the only reason Europe is not contracting very strongly today is because importers are trying to figure out how they can get coverage to meet short-term needs and not jeopardize net-zero targets.

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