MI’S Mexico Energy Chatter

MI’S Mexico Energy Chatter August 21st, 2024

NFE Loads First LNG Cargo from Altamira

• US New Fortress Energy (NFE) loaded its first liquified natural gas (LNG) shipment from the 1.4mpta Fast LNG (FLNG) unit 1 in Altamira on August 9th, making Mexico an official LNG exporter for the first time.

• The company had achieved first LNG production on July 19th. This development comes after months of delay from an initial expected start date of late 2023. Though a month or two delay is not unusual for a new project, NFE has faced uncertainty around this project because the technology is untested.

• Fast LNG units are built on floating platforms, which can be relocated as needed, offering flexibility in meeting demand. The technology aims to reduce costs and timelines associated with LNG production.

• NFE is planning to install two more Fast LNG units onshore in Altamira by 2026. However, these technical delays in the first phase 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 conditions.

• NFE announced on July 23rd that it had secured a $700m loan for its second Fast LNG unit. “Fast LNG 2 will be developed in partnership with CFE utilizing its extensive in-place terminal infrastructure onshore in Altamira, Mexico,” the company concluded.

CENAGAS Concludes 2024 Public Consultation

• Mexico’s natural gas transmission system operator (TSO) CENAGAS released the results of its 2024 public consultation on August 9th. CENAGAS conducts this annual exercise to receive recommendations and feedback from market participants on key elements of the natural gas industry.

• CENAGAS’ public consultation this year gathered 112 market participants active in every aspect of the natural gas supply chain.

• The industrial sector proposed 15 new projects during the consultation, followed by the power sector with 10 new projects, distribution and marketing with nine projects and storage capacity with just one project.

• CENAGAS had said that it would prioritize natural gas storage capacity during this year’s consultation but its final report showed almost no progress on this matter. Mexican authorities were supposed to issue tenders since 2018 for depleted onshore hydrocarbons sites or sites that were considered economically unviable for the extraction of hydrocarbons, in order to build the storage infrastructure needed.

• Energy ministry SENER identified four sites: Acuyo in the state of Chiapas, Brazil in the state of Tamaulipas, Jaf in the state of Veracruz or Saramako in the state of Tabasco. However, the tenders were never awarded and even when energy regulator CRE has authorized permits for the development of storage projects, nothing has come online yet. Mexico currently has a storage capacity of 2.4 days of natural gas reserves. This contrasts with the capabilities of countries like France, which has a storage capacity of 98.8 days of reserves and Spain with 34.2 days.

• The TSO also presented projections of future natural gas demand for key infrastructure projects of the administration of President Andrés Manuel López Obrador (AMLO), especially projects located in the southeastern part of the country. CENAGAS has focused during previous consultation periods on exploring the potential of natural gas as a driver of economic development in the area.

• One of those projects is the inter-oceanic corridor. CENAGAS said that the inter- oceanic corridor will require 11.3 million cubic feet of natural gas per day (MMcf)/d. The Tehuantepec isthmus inter-oceanic corridor is one of AMLO’s signature projects in the southeast.

• Mexican authorities intend to compete with the Panama Canal as a channel to move goods once this corridor is completed. The project would have 10 new industrial parks, which would provide tax incentives for companies that set up operations within it.

• Various Mexican officials in the past have said that they plan to use the wind generation potential in the area to power some of these projects. Mexico’s government has not provided further details about how it intends to execute on these goals. However, CENAGAS has said that most of the demand for this project will be covered by state producer PEMEX, which has been slowly increasing its natural gas production.

Claudia Sheinbaum Appoints New CFE Director

• President-elect Claudia Sheinbaum appointed Emilia Esther Calleja as the new director of public utility CFE. Calleja Alo, who will become the first woman chief executive of the utility is considered a technocrat with significant experience within CFE over the past two decades.

• Calleja Alor is an Electronics Engineer from the Instituto Tecnológico de Celaya in Guanajuato and holds a Master’s degree in Administration and High Management from the Universidad Autónoma de Coahuila. Calleja Alor has been instrumental in the construction and commissioning of new power generation plants. Additionally, she has served as a technical supervisor in instrumentation and control, and as the head of the performance analysis department, among other roles. Her expertise extends to chemical and environmental operations at the National Training Center in Celaya, as well as regional supervision in the Central Thermoelectric Production Submanagement. In 2023, she was appointed as the General Director of the CFE’s Generation I Subsidiary Productive Company, and she will now be in charge of the CFE.

• Her appointment was generaly well received by the market, which is anticipating a more technical approach. It remains to be seen whether her low profile means The FInance and Energy Ministries will take a more active role supervising CFE going forward.

• Among her responsibilities, a recent Fitch Ratings analysis showed that CFE remains exposed to fluctuations in natural gas prices and foreign exchange rates, as more than 65% of CFE’s installed capacity requires natural gas for electricity generation and Mexico imports around 70% of its natural gas needs from the US.

• CFE’s credit profile is reliant on receiving timely financial support from the federal government; historically, the subsidy has represented around 45% of CFE’s EBITDA, Fitch added.

• According to the ratings agency, CFE is vulnerable to political changes. CFE and CENACE handle the planning and control of the national power system. The change in Mexico’s administration could lead to a shift in the company’s investment plan and activities while material increases in investments will be difficult to fund absent of additional debt or government support, Fitch concluded.

EYES ON ENERGY

Sheinbaum Administration Should Prioritize New Generation Capacity Investments- Think-Tank Report
“Given the accelerated growth in consumption, it is necessary for the next federal administration to prioritize expanding generation capacity and exploring all investment possibilities so that this does not result in further pressures on public finances”, reads a new report released by the Mexico City think-tank IMCO.

IMCO’s analysis focused on the conflict between the accelerated growth in power demand in Mexico during the last few years versus the stagnation in new generation capacity.

Mexico’s power demand in the 2022-2023 period grew by 3.5% while generation capacity in the same period rose only by 0.6%, according to the latest power grid planning document PRODESEN 2024-2038. CFECapital, the newest branch of public utility CFE that manages its investment trust focused on energy and infrastructure projects Fibra E securities, has said that it is currently investing in various projects that will increase the firm’s installed generation capacity by 9GW.

The utility has not provided further details but it said that it is committed to building new combined cycle plants in strategic areas, improving its renewable generation capacity and investing to modernize its hydroelectric plants.