Following severe disruptions to gas supply from the United States, Mexico’s state-owned utility CFEnergia restarted LNG imports via Altamira LNG last week.
The terminal had been idled in 2019 as the country was keen to shift to a pipeline-only model. However, recent days demonstrated the importance of LNG import infrastructure to Mexico’s gas economy even as the country is working to turn itself into an LNG exporter.
Severe winter weather disrupted United States gas supply to Mexico last week, leaving more than two million households in seven northern Mexican states without power.
Major industrial sites in the region – including car plants owned by Volkswagen Group – were forced to temporarily halt operations. In total, Mexico’s gas imports via pipeline were cut by c. 25%.
Gas to electricity
Roughly 60% of the electricity produced in Mexico is generated with natural gas, according to CFE. Most of Mexico’s gas is imported from the United States via a system of overland pipelines.
The lack of gas affected close to 7 gigawatts of power capacity, national grid operator CENACE said last week.
Altamira LNG revived
This forced CFEnergia, the fuels generating and trading subsidiary of Mexico's state-owned utility CFE, to (temporarily) reinstate the Altamira LNG terminal. Altamira is the only LNG import facility on Mexico’s Atlantic coast and had been idled since October 2019, our data shows.
In June 2020, the terminal only took in a single cargo to keep the terminal in a cold state via a Fos-sur-Mer re-export aboard the LNGC Point Fortin. Mexico's pipeline administrator Cenagas is legally obliged to maintain access to some LNG capacity for balancing purposes.
On the Pacific side, the Manzanillo terminal has seen more use and also took in a cargo via the Flex Courageous on Friday.
LNG more than just complementary
Mexico’s LNG imports were traditionally seen as complementary to pipeline supply but began to rise as energy demand outpaced delayed pipeline capacity expansion in 2018.
In August 2019, however, CFE signalled it would stop tendering cargoes at Altamira before the end of the year due to an outlook of abundant pipeline capacity connecting Mexico to the United States.
Whilst Miguel Reyes, head of CFEnergia, pointed to the supply disruption as an example of Mexico’s dependency on United States gas, the country has benefitted from low gas prices in the United States for several years, making gas supply from the bigger neighbour an attractive source of energy.
Indeed, we are seeing little evidence of the Mexican economy limiting that close gas-trading relationship. In November last year, Sempra Energy announced a Final Investment Decision (FID) for its US$2 billion Energía Costa Azul LNG Export Project, which was the only LNG export project globally to reach FID in 2020.
The Energía Costa Azul project aims to capitalise on relatively cheap gas from Texas and the western United States by liquefying and exporting it as LNG to lucrative Asian markets in the Pacific.
The project’s first phase will be built and operated by Sempra LNG and IEnova, Sempra Energy's subsidiary in Mexico, as a single-train liquefaction facility with nameplate capacity of 3.25 million tonnes per annum (Mtpa).
The project is underpinned by two 20-year sale and purchase agreements with LNG trading house Mitsui and energy major Total for the purchase of approximately 2.5 mtpa Sempra expects first LNG production from the project in late 2024.