Mexico Energy Monitor

Mexico Energy Monitor / August 7th, 2024 

Energía Costa Azul LNG is Now 85% Complete 

• U.S. Sempra’s Energía Costa Azul LNG Phase 1 project is around 85% complete but has faced labor and productivity challenges in recent months, according to the company’s earnings report on August 6th. 

• Sempra said that it expects first LNG in 2025, with commercial operations under the sales and purchase agreements targeted for spring 2026. Sempra had previously targeted the start of commercial operations for summer 2025.  

• Energía Costa Azul is located north of Ensenada in Baja California. The first phase of this project will be a single-train liquefaction facility with a nameplate capacity of 3.25mtpa of LNG. Energía Costa Azul has a 20-year sale and purchase agreements with TotalEnergies and Mitsui & Co. for the purchase of a combined 2.5mtpa of LNG. 

• Construction on US Sempra’s Energía Costa Azul (ECA), one of the only two Mexico LNG export projects to have achieved final investment decision (FID) thus far, currently seem to be the furthest along in development followed by Mexico Pacific Limited’s Saguaro LNG, though several key updates are pending. Sempra has developed complex energy projects in the country including pipeline projects that were repeatedly delayed. 

• Despite these delays, conditions in the US natural gas market continue to favor growth in Mexican LNG export projects. Mexico’s natural gas pipeline imports from the U.S. remain high. The relatively steady, low price of U.S. natural gas futures is also positive for the commercial viability of these LNG projects. 

• Asian buyers continue to drive commercial interest in Mexico’s LNG, as demonstrated by most long-term offtake agreements for Mexican projects under development. Recent issues with the Panama Canal, involving severe drought affecting shipping, are elevating the relevance of Mexico’s west coast projects. 

• Export facilities such as the Singapore-based development company LNG Alliance’s Amigo LNG, Sempra’s Vista Pacífico and Energía Costa Azul and Mexico Pacific Limited’s Saguaro LNG will provide an Asia-facing gateway for LNG exports fed by US gas. 

Installed Capacity Increases by 31% During First Quarter of 2024 – CRE 

• Mexico reached 3,891MW of total installed capacity during the first half of 2024, according to energy regulator CRE’s latest data. This represents a 31.6% year-on-year increase. CRE added that this growth has been mainly driven by new interconnexion contracts with public utility CFE’s subsidiary CFE Distribucion, which rose by 25.5%. 

• Jalisco remains the leading Mexican state in terms of installed capacity and new interconnection contracts, CRE’s data shows. Distributed generation experienced a 31.5% overall in the country. 

• Despite this data, various market participants continue to raise concerns about CRE’s policy of permit denials, particularly for renewable projects. Recently, Mexico’s wind energy association (AMDEE) said CRE keeps blocking around $5.8billion in new wind energy investments. AMDEE added that CRE has delayed for around two years seven permits for wind power projects that are already built. These projects could add an additional 800MG of installed capacity to the grid. There are 28 extra permits for projects in various development stages blocked by the regulator as well, AMDEE said. 

• AMDEE has been critical of the energy policy of President Andrés Manuel López Obrador (AMLO) and various regulatory decisions adopted by CRE, including the current methodology to issue clean energy certificates (CELs). 

• In May 2023, CRE approved a resolution to update the methodology to issue CELs, which generated considerable backlash among market participants. Under the new resolution, the steam-generated energy in combined cycle plants will begin to be considered clean energy. 

• AMDEE and other market participants considered that CRE’s resolution artificially increases the amount of clean energy in the electricity system and that this action derails the standards to advance Mexico’s energy transition and accomplish emissions targets. 

Congressional Commission Prepares Constitutional Changes 

• The constitutional commission of the lower house of Mexico’s Congress recently disseminated a resolution oriented to eliminate the so-called “autonomous bodies”, which includes Mexico’s energy regulator CRE. 

• This action by the commission, which is controlled by the ruling party MORENA, responds to President Andrés Manuel López Obrador’s (AMLO) stated intention to change the structure of these agencies and institutions. 

• Some worry that the elimination of CRE increase uncertainty for market participants. CRE has responsibilities over the power market, natural gas, fuel trading, among other sectors. That said, as the CRE is itself controlled by appointees of MORENA, the day-to-day impact might be felt right away. 

• During AMLO’s administration, many market participants have accused CRE of acting against the market’s interest to favor the administration’s policies. Mexico’s energy regulator CRE denied 213 permits related to the power sector between 2019 and 2022, according to a report published by the U.S.-based Tholos Foundation. This contrasts with the only 56 denials from 2016 to 2018. 

• CRE is also denying or delaying permits for operating renewable plants that are already installed. CFE does not have the same issues to obtain these permits. These actions go in the direction of the explicit goal of AMLO’s government to gain market share for CFE at the expense of private market participants.

• One of the proposals also intends to return public utilities CFE and Pemed to public company status instead of its current “state productive company” label. By elevating CFE and Pemex to the status of a public companies again, AMLO is may be seeking to circumvent the Supreme Court’s unconstitutional ruling against its 2021 electricity industry law (LIE) reform. AMLO’s government is still seeking to position CFE in a primary role in the market, allowing it to operate with certain advantages when compared with private market participants.

Slim Grows His Stake in Talos 

• Carlos Slim, through his investment firm Control Empresarial de Capitales, increased his stake in both Talos Energy and PBF Energy. He invested another $24.2 million, acquiring 923,000 shares of Talos Energy and 357,000 shares of PBF Energy. This move boosted his ownership to 21.3% in Talos Energy and 15.5% in PBF Energy. This investment occurred amidst a broader strategy by Slim to capitalize on market conditions and expand his holdings in the energy sector. 

• Previously Talos Energy completed a significant transaction with Grupo Carso, selling a 49.9% stake in its Mexican subsidiary, Talos Mexico, to Zamajal, a subsidiary of Grupo Carso. This deal was valued at $124.75 million, with $74.85 million paid at closing and the remainder due upon first production. Talos Mexico holds a 17.4% interest in the Zama oil field, a major offshore project in Mexico. Talos Energy retains control with a 50.1% stake and will lead the development of the Zama field, which is one of the largest global shallow water oil discoveries in recent years.

• Beyond the Talos transaction, Grupo Carso has been actively investing in various energy projects. Notably, in July 2024, the company said it would invest $1.2 billion in the development of the Lakach deepwater field in the Gulf of Mexico, which is expected to begin producing gas around 2026.  

EYES ON ENERGY