US gas flows erode Mexico’s LNG imports; LNG projects face fuel market headwinds

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Mexico's LNG imports have fallen this year while pipeline gas imports from US have hiked. (Image credit: MsLightbox)

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US pipeline imports start to displace LNG in Mexico

Rising US natural gas pipeline exports to Mexico are starting to gradually displace Mexico's Liquefied Natural Gas (LNG) imports, according to the US Energy Information Administration (EIA).

US exports to Mexico set a monthly record high in July, averaging 3.3 billion cubic feet per day (Bcf/d), according to EIA data.
Exports averaged 2.7 Bcf/d in the first seven months of 2015, a 35% build year on year.

Mexico plans to import 9 Bcf/d of natural gas from the US under a five-year plan (2015-2019) to build gas pipelines and infrastructure worth $11 billion, including a new compressor station in the northern state of Chihuahua and 13 other projects, Mexico's Energy Ministry said in mid-October, according to Platts.

Meanwhile, Mexico's LNG imports fell 7% in the first seven months of 2015 compared to the same period in 2014, according to data from the government’s Secretaría de Economía.

As a result, Mexico’s three LNG regasification terminals have been operating below capacity.

Imports at the Energia Costa Azul terminal on the Pacific Coast, which was designed to supply the Southern California market and new power plants in Mexico's state of Baja California, have averaged 4% of the terminal's nameplate capacity since 2011 due to alternative pipeline supplies and lower-cost US gas.

The low utilization rate has prompted the terminal's operator, Sempra Energy, to consider a conversion of the terminal into a liquefaction facility.

Meanwhile, imports to the Altamira terminal on the Mexican east coast are down 14% in the first six months of 2015 compared to the same period last year as increasingly available lower-priced pipeline gas from the US has displaced LNG supplies. LNG imports at the Altamira terminal have consistently averaged around 50% of the terminal's capacity since 2008.

At the same time, LNG imports at the Manzanillo terminal on the west coast are expected to remain high in the next few years to feed power plants in Mexico's Central West region and relieve regional pipeline bottlenecks, but they could start to decline as more pipeline capacity is added in the area in the future, according to the EIA.

LNG projects face price competition, potential supply glut

LNG suppliers continue to face strong competition from Asian coal markets despite recent declines in prices and would soon face more pressure if they do not become more competitive on price, according to Fatih Birol, executive director of the International Energy Agency (IEA), Platts reported.

Operating costs for coal-fired power plants, for example, are almost half the cost for existing LNG-fired units, according to IEA data, particularly in countries with less strict environmental standards.

The IEA forecasts that the global LNG market will expand to around 500 billion cubic meters (bcm) by 2020 from the current 200 bcm as committed liquefaction projects come on stream, mostly in the US and Australia, and new LNG consuming markets emerge.

But the industry is facing a dilemma – while prices below $10/MMBtu are low enough to create more demand needed for further growth, it might prove insufficient to attract enough investment in new projects.

For example, the current full-cycle cost for an LNG project in Western Canada – which has one of the cheapest sources of gas globally – is Henry Hub $10/MMBtu, including upstream development, pipeline tolls, liquefaction and shipping, Platts reported, citing Bill Gwozd, senior vice president for gas services with Solomon Associates.

According to Gwozd, developers will work to cut this down to around Henry Hub $8/MMBtu through pipeline and shipping cost optimization.

At the same time, some analysts warn that many of the proposed US LNG export projects are unlikely to be built due to growing competition from foreign players – which will flood the market with natural gas as demand begins to slow – as well as financing difficulties and high upfront costs.

Atlanta, San Antonio ponder CNG switch

The Metropolitan Atlanta Rapid Transit Authority (MARTA) plans to fully convert its bus fleet to Compressed Natural Gas (CNG) no later than 2018, according to NGT News.

The agency, which currently operates 145 diesel and 420 CNG buses, has issued a request for proposals (RFP) seeking to procure up to 270 new 40-foot CNG units to replace the current CNG and diesel buses that are at the end of their lifecycle.

Meanwhile, San Antonio’s mass transit agency, VIA Metropolitan Transit, has said it plans to switch over its entire bus fleet from diesel to CNG over the next five to six years.

The company operates 22 CNG buses but has an RFP for the purchase of 500 new units, including options for buses that run on CNG.
VIA plans to buy the natural gas to fuel the buses from San Antonio's municipally owned utility company, CPS Energy.