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Mexico is stepping up imports of liquefied natural gas (LNG) as rising demand, falling domestic output and pipeline bottlenecks for cheap US imports force it to pay at least four times more for added supplies. |
A slump in LNG demand from top global buyer Japan has shifted the spotlight from Asia to major Latin American economies Brazil, Argentina and now Mexico, seeking to avert looming energy shortages with an ambitious programme of cargo purchases.
An energy crunch in March underscored Latin America’s second largest economy’s growing dependence on imports to keep power flowing, as state-run oil and gas monopoly Pemex scrambled to buy LNG at any price in order to avert potential grid failures.
“They say we bought expensive gas but today we’re worried about the integrity of the system,” Alejandro Martinez, director of Pemex Gas and Basic Petrochemicals said in an interview, referring to domestic criticism of the costly purchases.
Previously, gas piped in from a drilling boom in the US had kept import costs down but Pemex paid $19.45 per million British thermal units (mmBtu) for a spot LNG cargo in March, as imports from the US costing about $4.40/mmBtu hit the limit of pipeline capacity.
To help keep the lights on, state-run power monopoly CFE is expected to award the country’s biggest ever tender this week for supply of 30 LNG cargoes to be delivered in 2013 and 2014.
Argentina, another rising LNG importer, is also snapping up cargoes to meet its record annual demand while robust buying from Brazil adds to the supply squeeze and lifts prices across the board.
Put together, the rise in demand across what is now one of the world’s few booming economic zones, is one of the main factors propping up global LNG prices. Any sign that Mexico or the others may be able to relieve the pressure for supplies would have the opposite effect.
Martinez said Mexico will only likely reduce those costly imports towards the end of 2014 as major pipeline expansion works allow more US gas into the country.
That said, CFE is also re-negotiating its long-term LNG supply deal to win discounts from producer Nigeria, Pemex’s Martinez said.
As well as receiving cheap US gas by pipe, Mexico benefits from having some of its long-term LNG supplies tied to the same price point, considered unusually cheap by international standards.
Under a deal signed in the early 2000s with Shell and Total, Mexico’s CFE pays just 18¢-20¢/mmBtu above the benchmark US Henry Hub gas price for deliveries of LNG into the Altamira terminal on its eastern coast, Waterborne president Steve Johnson said.
US gas at $4/mmBtu is among the cheapest in the world, compared with $15/mmBtu in Asia, $15.50/mmBtu in Brazil and $16.80/mmBtu in Argentina, according to the most recent deals.