Home / Oil & Energy / General Energy News / Mexico Pacific to start ‘significant’ construction in June amid LNG demand surge

Mexico Pacific to start ‘significant’ construction in June amid LNG demand surge

US-based Mexico Pacific Ltd., which is constructing an LNG export terminal on the Atlantic Coast, has tied up sales contracts with Asian customers and expects to start “significant” construction as early as June ahead of its formal final investment decision, Sarah Bairstow, chief commercial officer, said in an interview at the World Gas Conference 2022 in South Korea.

The company is building a 14.1 million mt/year LNG export project in Puerto Libertad, Sonora, Mexico that will have direct access to customers in North Asia without having to send cargoes through the Panama Canal, with a fraction of the shipping distance.

Mexico Pacific’s project comprises three trains of 4.7 million mt/year each and it is on track to reach a formal FID in the second half of 2022 for its first two trains for which it has finalized sales contracts with Asian LNG importers, she said.

“We’ve certainly noticed a real shift in requests for contracting acceleration from customers and I think a lot of that has really been driven by the worry that Asian buyers have [about long term supply],” Bairstow said.

“Energy security has always been of paramount importance within Asia. And now we’re hearing that in Europe. Europe hasn’t yet contracted in a big way, but I think the Asian market sees it coming,” she said.

“And so we’re seeing this acceleration in wanting to lock down volumes before Europe comes into the market in a heavy way which is natural but obviously beneficial for projects like ours that are largely facing the Pacific,” Bairstow added.

US LNG projects have finalized several long-term sale agreements with Asian customers, especially Chinese buyers, in recent months, firstly due to surging prices and then by the Ukraine conflict. This has allowed several projects to move ahead.

“We’re actually now almost done with our train 1, train 1 FID volumes. We’re expecting to have our final contract in hand imminently that will allow us to take a train one and train two FID,” Bairstow said, adding that marketing efforts for train 3 volumes had also kicked off in earnest.

Stiff competition

Mexico Pacific had the option to take an FID on one train only but because of all the buyer activity it was able to accelerate train 2, allowing it to also start construction early, she said.

In April, China’s Guangzhou Development Group, a Guangdong provincial government-owned power and natural gas supplier, said it had signed a deal to buy 2 million mt/year of LNG from Mexico Pacific for a 20-year period.

When asked about the remaining buyers, Bairstow did not provide specifics but said the project had been able to “draw out the biggest and very established buyers within the LNG market.

“So, we haven’t at this point really gone into emerging markets,” she said, adding that there were enough customers taking significant volumes among the more traditional Asian buyers and portfolio plays with significant positions in Asia.

Bairstow pointed out that for its Train 3 volumes, Asian buyers are now competing with European buyers that are portfolio players and have come back to the table and asked to catch up in the negotiation process.

These portfolio players have a real priority on supplying into Europe, but many of them historically have had positions in Asia where all the demand is, she said.

“So now as they look to pull cargoes into Europe, they need to really backfill positions they have in Asia and these are essentially long term shorts,” Bairstow said.

“It’s really interesting now seeing those players who were very quiet in the market over the last year or so coming back into the equation, even on Asia Pacific demand,” she added.

Marketing LNG

Bairstow said Mexico Pacific has decided not to get into the gas and LNG trading space like some of its large North American LNG exporting counterparts have had to do to sell their volumes.

She said Mexico Pacific has not needed to engage in price negotiations due to the competitiveness of North American LNG prices, and talks have focused on the more qualitative aspects of the buyer and who may actually be able to contract ahead of the other.

Other factors in contracts include the authenticity of LNG demand, ensuring the procurement plans are real and not speculative purchases or trading coverage but genuine home market, national energy security coverage.

“It’s remarkable how many customers now are saying, ‘how quickly can you move it? How quickly can you close’ versus 12 months ago when it was completely the other way around,” Bairstow said, adding that every single contract Mexico Pacific has is 20 years.
The only reason Europe isn’t contracting in a very strong manner today is because they’re trying to figure out how can they get coverage to meet short-term needs and not jeopardize net zero targets, she said.

“Because when Europe steps into the market, it’s going to completely disrupt the availability of long term LNG supply,” she added.
Source: Platts

Recent Videos

Hellenic Shipping News Worldwide Online Daily Newspaper on Hellenic and International Shipping