Regional LNG: Marathon drops Mexico LNG project

US oil company Marathon Oil Corp. said on Monday it was ditching a two-year-old project to build a liquefied natural gas plant on Mexico's Pacific coast after the state government expropriated the site it was eyeing, Reuters reported.

The project was one of a handful of LNG plants that foreign oil companies are bidding to build in Mexico so that they can ship in supercooled liquid gas from overseas, regasify it, and sell it to northwestern Mexico and the booming U.S. market.

"Marathon and its partners are surprised and disappointed by the local government's decision to expropriate the land which we had an option to purchase," spokesman Paul Weeditz said.

"It is obviously a sign that the government will not support the project and as such it is clear that the Tijuana energy center will not be built," he told Reuters.

He said the Houston-based company did not have alternative site in the area for its LNG project, which was to have a regasification capacity of 750 million cubic feet per day and projected to come online in 2007.

Marathon had an option to buy land near Tijuana, but the Baja California state government said on the weekend it was taking back the site to use for public development projects.

An official at Mexico's CRE energy regulator said recently he doubted Marathon would succeed with its project because of stiff local opposition to it using the site, which is close to residential areas around Tijuana.

Marathon had hoped to win over the state government and local residents by proposing to combine its LNG plant with a wildlife sanctuary and a waste-water treatment facility which would have provided coolant for the plant and avoided tapping into scarce local fresh water reserves.

Marathon had held talks with a number of LNG producers about possibility to supply LNG toits proposed receving terminal including Indonesia.

Marathon, whose partners in the Baja project were Grupo GGS SA de CV and Golar LNG Limited, was the first oil major to apply last year for an LNG permit in Baja California.

Royal Dutch/Shell and Sempra Energy are awaiting the green light to build a plant in a 50-50 joint venture at a more isolated spot on the Baja California coast.

ChevronTexaco is bidding to build a $650 million offshore LNG plant off the nearby Coronado Islands, but faces opposition from environmentalists and opposition politicians.

Finally, Spain's Repsol and Suez-owned Tractebel are competing for an LNG plant further south.(*)