Global Insight Perspective | |
Significance | The LNG-import terminal built by Shell in Altamira is the first LNG project to be completed in Mexico. |
Implications | The country is seeking to diversify its fuel supplies through the construction of proposed LNG-import terminals. All gas imports previously came from the United States, but the construction of new LNG-import terminals means that Mexico will take imports from other parts of the world |
Outlook | Higher domestic gas production—particularly non-associated gas production in the north of the country—has contributed to a reduction in Mexico's fuel-import bill. However, growing consumption levels mean that, despite plans to continue increasing domestic production, the country is expected to continue to rely on gas imports to cover demand. |
Altamira Terminal Receives First Cargo
A LNG-import terminal in Altamira, on the north-east coast of Mexico, yesterday announced the arrival of the first ever LNG cargo delivered to Mexico. The 138,000-cm cargo owned by Shell was transported from the Nigeria LNG plant.
The managing director of the terminal said in the statement that the arrival of the first cargo marks the end of the Altamira terminal's construction and the start of the commissioning phase. This is the final stage prior to the beginning of commercial operations, scheduled for October 2006.
The Altamira project is the first LNG regasification terminal to be completed in Mexico, but others are expected to follow. Royal Dutch/Shell Group has a 50% stake in the project, Total 25%, and Mitsui (25%). Shell's Gas del Litoral signed a contract in 2003 to supply the state-owned Mexican power utility CFE with 500 MMcfd of gas per year from the Altamira project over a 15-year period, starting in 2006. The gas will be supplied to the Altamira V, Tuxpan V, and Tamazunchale combined-cycle power plants in the states of Tamaulipas, Veracruz, and San Luis Potosí.
Outlook and Implications
Mexico's gas market offers significant growth potential, as the government wants to increase the use of gas in power generation and as a domestic fuel. Although Mexico itself has abundant natural gas reserves, underinvestment in the state-run sector led to a decline in production, converting Mexico into a gas importer. Natural gas imports from the United States have been covering the shortfall in domestic production, but domestic gas supplies in that country are set to tighten and the United States itself is also looking to LNG projects to help meet the projected growth in demand in the coming years.
In recent years, Mexico has increased domestic gas production by increasing the state oil company's own investments in exploration and production and through the award of multiple service contracts to foreign companies for non-associated natural gas production in the Burgos Basin. This strategy has been paying off. According to Pemex data, associated and non-associated natural gas production for the first six months of 2006 averaged 5.188 Bcfd, compared with 4.511 Bcfd in the whole of 2001.
Demand is expected to grow at an average rate of 5.2% per year to reach 9.493 Bcfd in 2014, from 5.722 Bcfd in 2004, according to the Energy Secretariat's “Natural Gas Market Outlook for 2005-14”. National production is expected to grow at the same rate, but is expected to reach 7.704 Bcfd by 2014, which means that there will still be a shortfall—almost 19% of total projected national demand by 2014 will have to be met by imports. This is an improvement on the Energy Secretariat's previous outlook that anticipated imports accounting for 40% of national demand by 2013. However, even if Mexico doesn't need to import as much gas to meet future demand as it had previously anticipated, the proximity of the United States means that there is potential for any surplus LNG imports to be sent on to its northern neighbour.