Mexico is already one of the biggest clients of U.S. natural gas producers, and it will likely gain further prominence in the export destination mix in the future as government agencies discuss a change in project financing rules that could see an LNG export terminal on the West Coast finally get built.
In a recent story, S&P Global Platts cited Department of Energy Deputy Secretary Dan Brouilette as saying the department was in discussions with the Overseas Private Investment Corporation on the options for financing the West Coast LNG project, among other energy export projects, after the enactment of the BUILD Act. The new law allows the OPIC to fund projects not just with debt but also with equity, which should open up more funding opportunities.
The West Coast LNG project that could benefit from the legislative change is in fact an expansion project of a Sempra Energy regasification and storage terminal in Western Mexico. The plan is to add LNG export capacity to the tune of 11-12 million tons annually, but there is also a more moderate capacity version being discussed, for 2.5 million tons in LNG annually.
The project, Costa Azul LNG, is led by Sempra Energy’s Mexican subsidiary IEnova, in which the U.S. company holds 66.43 percent. The final investment decision should be taken in the second half of 2019, IEnova’s chairman, Carlos Ruiz Sacristan, said during the company’s third-quarter financial results conference call. The project would likely need the help of the Overseas Private Investment Corporation if IEnova and its parent decide on the larger-scale version. In that case, they will need another project partner and additionally financing, the chairman said.
S&P Global Platts quoted DOE’s Brouilette as saying, "We're going to be putting together a list of potential projects that we would like to see OPIC consider. The notion of allowing this new organization to take an equity position as well as a debt position I think fundamentally changes the types of projects that we might be able to encourage.”
With liquefied natural gas becoming an increasingly important part of the U.S. international expansion as an exporter, chances are LNG projects will make the list, and Sempra Energy’s will be among them. Related: Goldman Sachs: Brent To Hit $80 Before Year-End
Mexico currently receives 20 percent of U.S. LNG exports, all of them currently coming from Cheniere Energy’s Sabine Pass LNG facility. At the same time, LNG accounts for just 10 percent of the country’s natural gas intake, with the rest coming via pipelines from the United States. Yet the partners behind the Costa Azul expansion project are not just looking at the growing Mexican gas market. They are looking to Asia, which is the top demand growth area in LNG. If the negotiations between the DOE and the OPIC end favorably, this project could become one more way for American LNG to reach Asian customers.
There are many more LNG export projects being considered in the United States, but they are unlikely to experience smooth sailing. Two of these are on the West Coast: the Oregon LNG project was suspended due to a dispute regarding land ownership, and the Jordan Cove LNG project was rejected by the Federal Energy Regulatory Commission and Pembina, the company behind the project, is now working on a revised application. It seems like Sempra Energy’s Mexican project has the best chances for now.
By Irina Slav for Oilprice.com
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