Mexico Energy Monitor

Mexico Energy Monitor

January 24, 2024


Mexico Pacific and Exxon sign SPA

  • Mexico Pacific has signed a third long-term sales and purchase agreement (SPA) with ExxonMobil for an additional 1.2mtpa of LNG from Train 3 of Mexico Pacific’s Saguaro LNG project. The additional volumes were included as options under separate LNG SPAs executed in January 2023 for volumes from Train 1 and Train 2, a 16 January release said. Under the Train 3 sales agreement, ExxonMobil will purchase LNG on a free-on-board basis for over 20 years. There is also an option for another 1mtpa of offtake from Train 4, Mexico Pacific said.
  • The producer initially planned to reach a final investment decision (FID) on Train 1 and Train 2 by the end of 2023, according to previous announcements. The company said it “[remains] focused on taking FID on Trains 1 and 2”, while “this latest LNG SPA with ExxonMobil concludes the LNG sales required for a subsequent Train 3 FID expected this year”.
  • Questions remain on the project’s ability to commit the required amount of capital to take a final investment decision (FID). Pipeline construction and related infrastructure issues persist in Mexico and Mexico Pacific will have to develop a new pipeline (Sierra Madre) to satisfy the project’s demand. The Sierra Madre pipeline will have a capacity of around 2.8 billion cubic feet per day (bcf/day) and it will connect from Waha through the US-Mexico border crossing the Mexican states of Chihuahua and Sonora, all the way to the plant’s location in Puerto Libertad.
  • The company is trying to source feedgas from the Permian shale basin in the southern US, and to tout it position as a west coast producer that can tap into Asian market.

Altamira Fast LNG unit I delayed commercial operations date 

  • New Fortress Energy (NFE) delayed the start of commercial operations for its Altamira Fast LNG unit I. The company had expected first LNG from its 1.4mtpa Fast LNG Altamira project offshore Mexico in November 2023. All three platforms for the project, covering gas treatment, liquefaction and utilities, are now in place and the project is connected to its gas supply. However, the vessel expected to serve as the storage unit has not arrived at the site yet.
  • In mid-August the company had said it expected a completion date within 60 days, which had suggested a mid-October start. Market scrutiny is growing amid continued delays in NFE’s Altamira project. Even though at least a month or two delay is not unusual for a new project, there are deeper questions about NFE because the technology is so untested.
  • NFE is planning to install two additional Fast LNG units onshore in Altamira by 2024. However, these technical delays in the first phase challenge put a spotlight on the company’s timeline for the other two units. For Fast LNG 2 and Fast LNG 3, NFE will have to deal with both the technology and ongoing negotiations with Mexico’s state-run utility CFE, which include acquiring a power supply under preferential condition.

Mexico and two Canadian companies agree to suspend new international arbitrage procedure  

  • After CDP Groupe Infraestructures and Caisse de dépôt et plaicement du Quebec launched legal challenges against Mexico’s energy policies, Mexico’s economy ministry said that it reached an agreement with these two companies to settle the dispute independently.
  • Mexico is also facing ongoing energy dispute negotiations under the US-Mexico-Canada trade agreement (USMCA). USMCA energy consultations have been underway since mid-2022, without any significant progress. Several US and Canadian companies have complained about Mexico’s nationalist energy policies prioritizing state-run energy firms, which they considered as unfair trade practices.
  • Organizations such as the American Petroleum Institute (API), American Clean Power Association (ACPA) and National Association of Manufacturers (NAM) have urged the US government to fully enforce the USMCA against Mexico.

PEMEX receives credit rating evaluation upgrade  

  • Credit rating agency Fitch Ratings elevated PEMEX’s perspective to stable from negative but it maintained its credit rating in B+. Fitch said that the Mexican government decision to inject significant capital to the company in 2024 was a key factor in its decision.
  • Mexico’s 2024 budget is the first in history that includes detailed plans for PEMEX’s capital injections. The budget includes a direct transfer to PEMEX of around USD$8bn in addition to another USD$3bn in a responsibility reduction scheme.
  • PEMEX is significantly indebted and government support has become essential for the firm’s financial stability. Pemex is highly reliant on international capital markets to refinance its existing debt because a significant portion of its total debt is in hard currency. While Fitch maintained PEMEX’s rating, the agency has said in the past that PEMEX “will be an increasing liability” for Mexico’s public finances.

CRE’s commissioner steps down 

  • Mexico’s energy regulator CRE’s commissioner Norma Leticia Campos Aragon stepped down in December 2023. Campos Aragon had been a consistent critic of the regulator’s approach to the market.
  • Campos Aragon questioned the decision of CRE’s president Vicente Melchi to bypass the approved calendar after the regulator resumed pre-pandemic legal terms to process and respond to private sector permit requests. CRE interrupted its normal schedule for permit processing due to restrictions imposed to contain the pandemic in 2020 but it resumed normal operations on 1 March 2023. IMCO
  • The Mexico City-based think tank Mexico Institute for Competitiveness (IMCO) released a new reportcalling to reform the Mexican Petroleum Fund (FMP) to guarantee proper financing for the energy transition in the country. IMCO said that oil revenue should produce productive investments and the infrastructure needed for the energy transition.
  • The FMP’s reserves are currently equivalent to only 0.06% of Mexico’s GDP, IMCO added. IMCO proposes a new structure to expand the FMP’s long-term reserves and added that the FMP could become one of the key instruments of future climate financing in Mexico.
  • Mexico updated its climate goals in 2022 from 22% to 30% in conditional reduction and from 36% to 40% in unconditional reduction of greenhouse gas emissions. Mexican authorities identified around 40 potential measures in various economic sectors that they could implement to meet these goals, including expanding protected natural areas as well as advancing new regulation and industrial development policy, in which the energy sector is essential.


Hydrocarbon association proposes natural gas production increase

The Mexican association of hydrocarbon companies (AMEXHI) said in a 19 January statement that Mexico should increase its natural gas production to strengthen energy security in the country. AMEXHI added that 80% of Mexico’s domestic natural gas consumption depends on US imports and that Mexico has enough reserves to satisfy domestic demand. AMEXHI’s call comes after cold temperatures in the US in early January threatened the normal natural gas flows to Mexico.

Mexico has been gradually increasing its reliance on US natural gas, as the pipeline system connecting both countries and different areas within Mexico grows:

Pipeline Growth Timeline (According to the US Energy Information Administration):

In 2020, the Wahalajara system, a group of pipelines that connects the Waha hub in West Texas to Guadalajara and other population centers in west-central Mexico, was completed. The Villa de Reyes–Aguascalientes–Guadalajara pipeline system (0.9 Bcf/d capacity), which connects to several other pipelines in Central Mexico, was placed in service that year. The Sierrita pipeline, which transports natural gas from Arizona to the Mexican border, was expanded by 0.3 Bcf/d.

In 2021, the Mier-Monterrey pipeline (0.2 Bcf/d) was expanded. This pipeline delivers natural gas from U.S. connecting pipeline NET Mexico in South Texas to the Monterrey Hub in northeastern Mexico. The Samalayuca-Sásabe pipeline (0.5 Bcf/d capacity), which transports natural gas from the Permian Basin in West Texas and eastern New Mexico to northwestern Mexico, entered service.

In 2022, two more pipelines that deliver natural gas to Mexico’s capital city region went into partial service: the Tula–Villa de Reyes pipeline (0.9 Bcf/d) is expected to begin full service in 2023, and the Tuxpan–Tula pipeline (0.9 Bcf/d) is expected to begin full service in 2025.

In 2023, the Cuxtal Phase II pipeline—the second segment of the Energía Mayakan pipeline—is expected to enter service. The Energía Mayakan pipeline expands the natural gas pipeline network on the Yucatán Peninsula.