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Pemex confident demand exists for LNG terminal project in southern Mexico

Mexico City — Pemex estimates 1 Bcf/d of constrained demand in southern Mexico

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The terminal will compete against continental gas flowing through Cempoala

Pemex expects there will be enough gas demand in southern Mexico to allow its new LNG terminal in the port of Pajaritos to operate, the CEO of the state oil company said.

"I believe the gas demand in southern Mexico will grow enough for both supply projects to operate," Carlos Trevino, Pemex CEO, said last week on the sidelines of the ADIPEC conference in Abu Dhabi. Cenagas also is supporting the development of a compressor station reversal project at Cempoala, which will also serve southern Mexico demand in 2019.

The proposed Pajaritos floating regasification and storage unit could be an important supply line for Mexico's southern region, which is facing some of the most severe gas-supply shortages in Mexico, according to Platts Analytics.

As a result, power prices in the peninsular region have been exceptionally high this year as the region has been far more reliant on diesel and fuel oil for power generation and industrial users have seen their demand curtailed.

Trevino said there is close to 1 Bcf/d of gas demand in southern Mexico that isn't currently being served.

The new FRSU Pemex is developing at the Port of Pajaritos will supply up to 500 MMcf/d. It is expected to begin operation in March.

The new terminal will be competing against low-cost continental gas delivered through TransCanada's 2.6 Bcf/d Sur de Texas - Tuxpan pipeline and the reconfigured Cempoala compression station in first-quarter 2019.

Pemex, as the largest fuel marketer in the region, plans to socialize the cost of imported LNG across all its customers, Trevino said.

The Pajaritos LNG terminal will relieve gas shortages in southern Mexico in the years to come, Rodrigo Favela, a partner of Mexico City-based energy consulting firm HCX, said last week.

"It is probable that Pemex's production goals won't be achieved while regional demand increases, so we expect the gas deficit will continue for years to come in southern Mexico," he added.

According to Cenagas, supply from Pemex's gas-processing plants and dry gas fields nationwide has fallen to an average 1.74 Bcf/d in 2018 from 1.96 Bcf/d in 2017 and 3.6 Bcf/d in 2012.

If the trend continues, Pemex's gas supply into the Sistrangas network will fall to 1.49 Bcf/d in 2019 and 893 MMcf/d by 2022, according to Cenagas.

Favela considers that both the reconfiguration of the Cempoala compression station and the Pajarito LNG terminal will be required to supply southern Mexico.

"People don't realize that there is an important demand for gas in Mexico that it isn't being supplied and it is triggering additional consumption," Favela said.

The consultant considers that the availability of gas in southern Mexico through the Cempoala compression station will be less than the market expects.

"The availability of gas flowing through Cempoala south will be less than expected due to the demand growth in northern, central, and western Mexico," he said.

After system operator Cenagas completes the reconfiguration of the Cempoala compression station in Veracruz state in Q1 2019, S&P Global Platts Analytics expects gas shortages in southern Mexico will ease.

With demand flat and domestic production still declining, Platts Analytics Mexico CellModel estimates that the southern market balance has been net short roughly 160 MMcf/d in November.

Data indicated southern Mexico's gas market, in fact, is about 50 MMcf/d tighter year on year, CellModel showed.

One place where this shortage has manifested is in lower outflows to the Peninsular Region, which is connected to the southern region through the 280 MMcf/d Mayakan pipeline.

Flows on Mayakan averaged 53 MMcf/d in October, down an estimated 40% year on year, according to Platts Analytics.

But Pemex's accelerated timeline for the commercial operation of the Pajarito FRSU might be difficult to meet, according to Platts Analytics. The construction of the FRSU depends on unit market availability and the regulation surrounding the onshore portion of the project. The shortest development time of an FRSU was roughly five months at the Bahia Blanca terminal in Argentina, according to Platts Analytics. -- Daniel Rodriguez, daniel.rodriguez@spglobal.com

-- Herman Wang, herman.wang@spglobal.com

-- Edited by Valarie Jackson, newsdesk@spglobal.com