LNG

Kinder Morgan Inc. (KMI), the leading US pipeline feed-gas company for liquefied natural gas plants and a key energy infrastructure operator and developer, said it agreed to acquire STX Midstream, the South Texas unit of NextEra Energy Partners, for $1.815 billion.

Petróleos Mexicanos (Pemex), the Mexican oil and gas company, is currently struggling to emerge from the economic slowdown amid widening losses and tumbling revenues at a time when several LNG export projects are moving forward in the country.

Mexican state oil and gas company Petroleos Mexicanos (Pemex) narrowed losses to the equivalent of $2 billion in the second quarter as US pipeline natural gas and LNG imports helped keep power sources at peak capacity. The losses were an improvement on the huge 562 billion pesos ($25Bln) loss registered in the previous quarter for foreign exchange reasons and the collapse of oil prices.

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. 

McDermott International posted a more than 23 percent rise in second-quarter revenues to 2.1 billion and a small net loss as it continued to make progress on two US Gulf Coast LNG export projects, the Cameron liquefaction plant in Louisiana and Freeport facility in Texas.

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.

Mexico is cancelling a tender for a liquefied natural gas floating storage and regasification unit originally proposed for the Port of Pajaritos to alleviate gas shortages in the southern Gulf of Mexico state of Veracruz.

State energy company Petroleos Mexicanos (Pemex) and its natural gas supply subsidiary, Mex Gas Supply, launched the tender in July 2018 and it attracted leading LNG FSRU sector players.

The tender was for the chartering and installation of an FSRU for an initial period of five years with regasification capacity of more than 500 million cubic feet per day.

The FSRU at Pajaritos would have required 2.5 million tonnes per annum of LNG, while an additional 2 MTPA of cargoes would have been purchased on a quarterly basis as needed.

Pemex executives haven been told by the new Chief Executive of Pemex, Octavio Romero Oropeza, that LNG imports were no longer a priority as the company’s focus switches to producing more domestic natural gas.

Domestic natural gas production in Mexico has fallen by about 42 percent from its peak of 6.52 billion cubic feet per day reached in 2009.

Pemex is aiming to double production by 2024 to 5.7 Bcf per day, driven by associated gas, as part of a plan to reduce reliance on LNG and pipeline imports.

Mexican LNG imports are received at onshore terminals located at Altamira in the Gulf of Mexico and at Manzanillo on the Pacific Coast.

A third onshore terminal at Costa Azul, also on the Pacific Coast, is owned by Sempra Energy of the US.

However, Costa Azul imports have dropped off and Sempra is planning an LNG export facility, using feed-gas from imports originated in the US.

The Pajaritos FSRU had been planned to ease gas shortages in the southeast of the country, especially on the Yucatan peninsula, where the 485-mile Mayakan pipeline supplies five Federal Electricity Commission (CFE) combined-cycle gas-fired power plants.

The CFE has pointed to the imminent start-up of new natural gas pipelines from the US, including the subsea Sur de Texas-Tuxpan line crossing the Gulf of Mexico.

The Sur de Texas-Tuxpan subsea pipeline is a joint venture between North American company TransCanada Corp. and the Sempra subsidiary Infraestructura Energetica (IEnova).

The pipeline runs from South Texas to the Mexican port of Tuxpan and is scheduled to come on line in the first quarter of 2019 with capacity of 2.6 Bcf per day.

Mexico is continuing to import growing volumes of pipeline natural gas and LNG as monthly shipments increased by more than 13 percent from the US cross-border pipelines and in the form of cargoes from the Sabine Pass liquefaction plant in the US state of Louisiana and other LNG exporting countries such as Nigeria and Peru.

Mexico, the largest customer for US LNG with 65 cargoes received since 2016 and other shipments brought in from nations such as Nigeria, is planning a tender for strategic storage of natural gas at four depleted oil and gas reservoirs.

March 27 (LNGJ)- Mexico is holding its latest upstream auction of exploration and production licences in areas of the Gulf of Mexico with high natural gas prospects. It is offering 35 blocks under production-sharing contracts in the southern waters of the Gulf. The Mexican authorities have authorized 21 companies to take part in the auction from 14 countries. The blocks are divided into three sectors: the Burgos Basin (blocks 1-14), the Tampico-Misantla and Veracruz Basins (blocks 15-27) and the southeastern basins (blocks 28-35). In addition to the US oil majors and European companies such as Royal Dutch Shell, there are also bidders from companies in Spain, Germany, Argentina, India and Malaysia.