LNG

Mexico-Pacific LNG has signed a third long-term Sales and Purchase Agreement with ExxonMobil’s Asian trading unit for an additional 1.2 million tonnes per annum of LNG from a liquefaction and export venture under development in the Northwest Mexican state of Sonora.

Sempra Infrastructure, the subsidiary of California-based utility and energy company Sempra and with stakes in LNG plants and projects in the US and Mexico, has completed the sale of a stake in the Port Arthur LNG project in Texas to US asset management firm Kohlberg Karvis Roberts (KKR), which is already a stakeholder in Sempra Infrastructure.

Sempra said the sale was complete to KKR on a 42 percent indirect, non-controlling interest basis in the Port Arthur LNG Phase 1 project .

The transaction results in Sempra Infrastructure retaining a controlling 28 percent indirect interest in Phase 1 at the project level, and ConocoPhillips owning the remaining 30 percent interest.

“The closing of this transaction continues the positive momentum of our world-class Port Arthur LNG facility and highlights Sempra Infrastructure's ability to access capital to support the growth of its infrastructure business,” said Justin Bird, Chief Executive of Sempra Infrastructure.

“We remain committed to developing energy infrastructure projects with strong partners to continue growing our portfolio while advancing global decarbonization and energy security,” Bird added.

James Cunningham, a Partner at KKR, said the firm was pleased to proceed with the investment.

“Port Arthur LNG Phase 1 has continued its strong momentum and is on track to meet its objectives of helping to deliver energy security, economic growth and a near-term supply of reliable and cleaner energy,” added Cunningham.

Texas FID

Sempra Infrastructure reached a positive final investment decision for Port Arthur LNG Phase 1 in March 2023 and contracted US engineering firm Bechtel Energy to build the facility.

The company has additionally placed major long-lead time orders with equipment and technology companies Air Products and Baker Hughes.

The $13 billion total estimated capital expenditures for the Port Arthur project are being financed with $6.8Bln of non-recourse project-level debt and $6.2Bln of project-level equity.

The company noted that 100 percent of current contractable capacity for Port Arthur Phase 1 had been secured with long-duration contracts and high-quality counterparties.

“The expected commercial operation dates for Train 1 and Train 2 are 2027 and 2028 respectively,” Sempra said.

Progress also continues at Energía Costa Azul LNG Phase 1 on the Pacific Coast of Mexico where construction at the Mexican export project remains on track to reach commercial operations by the summer of 2025.

The San Diego, California-based company is also pursuing a Phase 2 development project at the Cameron LNG export plant in Louisiana. 

TC Energy, the North American natural gas and energy pipelines company constructing pipeline links from British Columbia's shale basin to LNG projects on the coast, reported a surge in net income of more than three-fold as projects progressed from Canada to Mexico.

CFEnergía SA, a subsidiary of the Mexican Federal Electricity Commission (CFE), has closed a four-day window for pre-registration of expressions of interest from companies and investors to join an onshore LNG export project planned for the port of Coatzacoalcos in the state of Veracruz on the southern coast of the Gulf of Mexico.

New Fortress Energy, the New York-based developer of liquefied natural gas and power projects in Latin America and the Caribbean, has signed two long-term LNG agreements to acquire supplies to support its gas and power businesses in Puerto Rico, Mexico and Nicaragua.

Petroleos Mexicanos (Pemex), the Mexican oil and gas producer, appears to have nothing left in its locker to cope with the current global crisis and may have to call on US credit lines for its pipeline natural gas and LNG imports after its corporate and state ratings were reduced.

The socialist government of President Andrés Manuel López Obrador, which had made boosting Pemex’s declining output one of its core objectives, is now being squeezed on the financial front after reversing previous administration’s policies and keeping private companies out of the energy business.

Before then crude price slump and coronavirus impacts Pemex had produced 1.7 million barrels a day of crude on average in January 2020, below government forecasts and just half of peak production of 3.4M barrels in 2004. 

Analysts said that with oil prices where they are, 75 percent of Pemex’s oil and gas fields will only generate losses if output is not cut.

They added that the risks goes well beyond Pemex as the Mexican government relies on the energy company to fund 18 percent of the national budget with its oil sales.

US company S&P Global Ratings has now downgraded Pemex and its subsidiaries PMI Trading Ltd., PMI Norteamerica SA and MEX Gas Supply and conducted similar action on the sovereign credit rating.

“Recurring government aid to Pemex over the last 12 months reinforces our assessment of an almost certain likelihood of extraordinary government support if the company were to run into financial difficulties,” explained S&P Global.

“Therefore, the ratings on Pemex continue to mirror those on the sovereign debt,” it added.

López Obrador was aiming to build a large new oil refinery in an $8 billion project with which he hoped to divert Mexican oil exports to domestic use and cut dependence on US fuel imports.

The Mexican President had reversed the policies of the previous administration that had decided to gradually cut Pemex loose from state funding for its monopoly business.

Some of the refinery contracts were awarded in July 2019 for the project in the southern port of Dos Bocas to companies including US LNG and energy engineers KBR Inc., Fluor Corp. as well as Samsung Engineering of South Korea and several Mexican companies.

The refinery in the President’s home state of Tabasco was scheduled to process 340,000 barrels per day of Mexico’s benchmark grade, Maya heavy crude, and to be completed by 2022. 

S&P Global downgraded its foreign currency and local currency ratings on Pemex to “'BBB” and “BBB-plus” from “BBB-plus” “A-minus”  respectively, and maintained a negative global scale ratings outlook after similar action on Mexican government debt.

“Lower oil and natural gas prices anticipated over the next two years will jeopardize the execution of Pemex’s business plan, because weaker cash flow will limit the ability to fully fund its multi-annual capital investment needs,” explained the S&P report.

“In this context, we see limited room for Pemex to improve its very weak credit metrics any time soon,” stated the US firm.

“In addition, low cash flow generation prospects and an extended period of adverse financing conditions could gradually tighten the company's liquidity,” it added.

“Therefore, we have revised downwards our stand-alone credit profile (SACP) on Pemex to “CCC-plus” from “B-minus,” said the report.

“The negative outlook on Pemex mirrors that on the sovereign and reflects our view that the close relationship between the company and the sovereign will remain unchanged in the next couple of years,” S&P explained.

“Our assessment also captures the integral link between Pemex and the government, given its full ownership of the company and the high government involvement in all strategic decisions,” it added.

“We consider that our assessment has been reinforced over the last 15 months through recurring government aid to Pemex in the form of capital contributions, legal amendments to alleviate the company's tax burden, the monetization of certain assets, and close collaboration to deter fuel theft,” said the credit report.

“Another factor captured in our assessment is the reversal in Mexico's energy policy under the current administration, which repositions Pemex at center stage and curbs the participation of private players in the domestic energy sector,” added S&P.

The US ratings firm said it expect a “pronounced hit” to the Mexican economy with the combined shocks of the coronavirus in Mexico itself and in the US, its main trading partner, and lower oil prices.

“These shocks, while temporary, will worsen already weak gross domestic product (GDP) growth dynamics for 2020-2023 that reflect, in part, low private-sector confidence and poor investment dynamics,” it said. 

Sempra Energy, the California-based utility and owner of the Cameron LNG plant in Louisiana and with two other export facilities under development, reported full-year earnings of $2.1 billion and progress on all three ventures.

Petroleos Mexicanos (Pemex), the Mexican oil and gas company, said its natural gas production rose by almost 2 percent last month compared with the previous month as the nation aims for a medium-term reduction of imports from the US by pipeline and as LNG shipments.

Pemex said its February output of gas averaged 3.763 billion cubic feet per day, an increase from the January average of 3.696 Bcf per day.

Associated gas extracted from oil wells accounted for 73.9 percent of the natural gas total, up from 72.1 percent a year ago.

However, Pemex’s natural gas production in February was down 42 percent from the peak level of 6.516 Bcf per day reached in 2009.

Since 2009, demand has been steadily rising among power companies and industrial customers, making Mexico increasingly dependent on the US imports.

Mexico imported 5.129 Bcf per day of natural gas from the US in 2018, more than four times the 1.258 Bcf per day averaged in 2009.

The nation also receives an average of three US LNG shipments per month and is the largest recipient of US liquefied volumes after South Korea.

Pemex said its crude oil output rose in February to 1.707 million barrels per day from 1.623 million barrels per day in January.

Pemex Chief Executive Octavio Romero Oropeza said that the company had been tasked by the government with reversing the negative trend in exploration and production of previous years and was focusing on rescuing the country’s “oil and gas sovereignty”.

The CEO said he was now working on accelerating the development of 20 new fields in Pemex’s portfolio.

Romero Oropeza explained that of the 20 fields to be developed, 16 were in shallow waters offshore and four were onshore.

He added that the 16 offshore fields would lead to the construction of 13 production platforms and the installation of 14 pipelines with a total length of 175 kilometres.

The CEO stated that the four new onshore fields would also require a high work load, such as the construction of three new drilling platforms and the expansion of nine existing platforms.

The new fields include the natural gas-rich Ixachi onshore field in the southeast state of Veracruz.

Pemex said it expected Ixachi to eventually supply about 700 million cubic feet per day of natural gas and 80,000 barrels per day of condensate.

The Ixachi field would begin supplying gas to the Sistrangas national pipeline grid by the end of 2019 and would help to partially offset declines at mature Pemex fields.

KBR Inc., the US energy and LNG engineering company said it was awarded a preliminary engineering and design contract by Mexico Pacific Ltd (MPL) for a US-led midscale LNG liquefaction and export project at Puerto Libertad on the Pacific coast of Mexico.

Under the terms of the contract, KBR will provide pre-front-end engineering and design work and cost estimates for the project.

This work will be performed by KBR utilizing the ConocoPhillips Optimized Cascade liquefaction technology, leveraging the midscale LNG joint development work previously announced by KBR.

With offices in Houston, Texas, MPL is a venture comprising DKRW Energy Sonora Holdings and Aecom Capital, a New York-based equity fund that invests in energy and infrastructure projects.

MPL has additional Mexican regulatory permits for 12 million tonnes per annum of output and proposes the initial construction of up to four mid-scale modular processing Trains, each producing 1 MTPA.

“We are excited to be a part of this Mexico Pacific Limited LNG project and to deliver innovative LNG technology solutions for our customers,” said Farhan Mujib, KBR President for Hydrocarbons Delivery Solutions.

“We believe midscale LNG projects have an important part to play in the global LNG market,” added Mujib.

The Puerto Libertad project site is contained within 1,100 coastal acres and the harbour depths are in excess of 20 metres and capable of accommodating the largest LNG carriers.

“We look forward to working with an LNG industry leader in KBR, and continuing our efforts to provide a world class project with best in class delivered pricing for our Asian buyers,” said Josh Loftus, President of MPL.

The KBR contract continues a broader competitive process with FEED expected to start in mid-2019.

The US Department of Energy’s Office of Fossil Energy approved MPL’s application in September 2018 to export 1.7 billion cubic feet per day via existing cross-border natural gas pipelines to be liquefied at the Puerto Libertad plant.

The pipelines include the Kinder Morgan Sierrita Gas Pipeline, which extends to the US-Mexico border near Sasabe in Arizona.

From MPL’s facility, which would be sited on the shore of the Gulf of California adjacent to Puerto Libertad, the LNG could be delivered to other markets in Mexico or to nations with a Free Trade Agreement with the US.

MPL President Loftus formerly worked with global accountants and consultants Ernst & Young where he was a business development manager in the energy sector in Houston.

He previously held several senior roles with the General Electric Company, including at GE Oil & Gas.

Loftus received a BA in economics and business administration from the University of Missouri and an MBA from the University of Notre Dame in Indiana.

Sempra Energy said that recent agreements signed supported the goal of the California-based utility and project developer to become one of the largest US exporters of LNG with targeted volumes of 45 million tonnes per annum.