ConocoPhillips agrees to buy LNG from Mexico Pacific

ConocoPhillips has agreed to buy LNG from Mexico Pacific, a proposed gas export terminal on the Pacific Coast of Mexico, an emerging area of interest for LNG developers.

Mexico Pacific announced a sales and purchase agreement (SPA) with ConocoPhillips, a 20-year deal covering approximately 2.2 million tonnes per year (mtpa). The cargoes would come from the proposed Saguaro Energia complex in Puerto Libertad on Mexico’s Pacific coast, located in the state of Sonora. The deal would be “free on board,” a contractual arrangement where responsibility for shipping and other costs is held by the buyer.

The three-train Saguaro Energia project would have a capacity of 15 mtpa if completed.

“We are delighted to welcome ConocoPhillips as yet another world-class partner for Trains 1, 2 and 3,” Ivan Van der Walt, the CEO of Mexico Pacific, said in a statement.

Van der Walt said that its sales volumes put Trains 1 and 2 into “oversubscribed territory.” Saguaro Energia previously signed SPAs with Shell, ExxonMobil, and China’s Guangzhou Development Group.

The project is one of at least five proposed LNG projects for Mexico’s Pacific coast, several of which would be fed by gas produced in the United States. The region is picking up interest as a corridor to export Permian gas from West Texas to Asia. Sempra is currently building the first phase of Energia Costa Azul in Baja California, the project that is furthest along in development.

The industry sees multiple advantages through going to Mexico’s West Coast. LNG terminals would open up new markets for Permian gas, as the U.S. Gulf Coast becomes increasingly crowded by other projects. The West Coast would also bypass the Panama Canal, shaving off time and costs for LNG from North America trying to reach Asia.

In addition, the U.S. West Coast has become all but closed off for the gas industry. North American gas producers looking for a Pacific route to Asia have concentrated on British Columbia in Canada, along with the West Coast of Mexico.

ConocoPhillips CEO Ryan Lance told investors on an August 3 earnings call that the agreement with Mexico Pacific is “all in service with trying to build up a bigger LNG business inside the company.”

Exporting LNG from Mexico’s Pacific Coast also “provides further takeaway optionality from the basin, which I think is helpful for Waha pricing,” Conoco’s executive vice president W. L. Bullock added, referring to the pricing marker for natural gas in the Permian basin. In other words, finding more export routes for gas from the Permian will increase prices, benefitting upstream drillers in West Texas, including ConocoPhillips.

Mexico Pacific aims to make a final investment decision on Trains 1 and 2 of Saguaro Energia later this year. The company says the $15 billion project will help make Mexico the fourth largest LNG exporter in the world.