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Shell to offtake another 1.1 million mt/year of LNG from Mexico Pacific export project


Supplies to be sold FOB under 20-year deal

Shell has previous offtake agreements for 2.6 million mt/year

14.1 million mt/year export project awaits FID

  • Author
  • Corey Paul
  • Editor
  • Richard Rubin
  • Commodity
  • Energy Transition LNG Natural Gas Shipping

Shell has agreed to offtake an additional 1.1 million mt/year of LNG from Mexico Pacific's proposed Saguaro Energia LNG export terminal on the Pacific Coast of Mexico, the companies said March 27.

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The deal marked the latest commitment by a heavyweight LNG buyer to the Saguaro Energia LNG project. An affiliate of the LNG portfolio player, Shell Eastern Trading, will buy the LNG on a free-on-board basis over a term of 20 years, according to the announcement. The Shell unit has a previous sale and purchase agreement signed in July 2022 for 2.6 million mt/year from the first two liquefaction LNG export project, while the latest deal was for LNG from a planned third train.

Privately held Mexico Pacific has yet to commercially sanction Saguaro Energia, which would be built on the Sea of Cortez in Puerto Libertad, Sonora,and use US feedgas to produce LNG. The project would have a capacity of 14.1 million mt/year when all three liquefaction trains are constructed, each with a capacity of 4.7 million mt/year.

The Shell deal added to the significant commercial momentum that Mexico Pacific has built behind the project over the past year. MPL in February signed two 20-year deals with an ExxonMobil affiliate for a total 2 million mt/year. It signed another deal in March 2022 with China's Guangzhou Development Group for 2 million mt/year. Including the latest Shell deal, Mexico Pacific now has long-term agreements covering more than half of the three-train production capacity. Mexico Pacific said that the deal with Shell underpinned 20% of the capacity of the third train, while suggesting the liquefaction unit would be commercially sanctioned after the first two trains.

Marketing efforts

The planned location has been a selling point of the export project, allowing LNG tankers to reach East Asia in about half the time it takes for shipments from the US Gulf Coast. Mexico Pacific has marketed the project as offering "the lowest landed price of North American LNG into Asia."

"Our project will provide Asia with low-cost Permian gas, avoiding the Panama Canal to ensure a shorter shipping distance to Asia, to achieve lower transportation emissions and landed pricing vs. the US Gulf Coast," Mexico Pacific CEO Ivan Van der Walt said in a news release for the Shell deal. "As we work to deliver a final investment decision on the first two trains, we are also closing out contracting across the significant commercial momentum in place for Train 3 to ensure that a subsequent Train 3 FID can follow as quickly as possible."

Mexico Pacific told the US Federal Energy Regulatory Commission in late January that it was negotiating a precedent agreement for feedgas deliveries from a pipeline project being developed by Oneok that would move up to 2.8 Bcf/d from the Permian Basin to planned facilities at the US-Mexico border.

Mexico Pacific told FERC that it expects its proposed LNG export terminal to start receiving gas in 2026 before exporting the first shipments of LNG in 2027.

The project requires an export permit from the Mexican government, something that has proven a challenge for multiple developers that have proposed LNG export projects in Mexico.

Steve Hill, executive vice president of energy marketing at Shell, said in the statement that the deal with Mexico Pacific would help Shell provide more LNG to the global market in the latter part of the decade.

"LNG is an increasingly important pillar of global energy security," Hill said. "Investment in liquefaction projects is needed to avoid a supply-demand gap that is expected to emerge in the late 2020s."