Regional LNG: Mexican govt to okay ChevronTexaco's LNG plant

U.S. oil major ChevronTexaco Corp. is set to clear the first hurdle in its bid to build a US$650 million offshore liquefied natural gas terminal (LNG) off Mexico's Pacific coast as early as April, Mexico's energy regulator was quoted by Reuters Tuesday.

Mexico's Energy Regulating Commission (CRE) said it expects to award Chevron a permit to build a plant near the Coronado Islands, eight miles (13 km) off the Baja California coast.

Chevron also needs to obtain environmental and land use permits for construction of the 700 million cubic feet per day (MMCFD) facility to go ahead.

The U.S. giant would be the second oil major after Royal Dutch/Shell to invest in Mexican LNG plants aimed at meeting a growing demand in Mexico and the United States for gas for power generation and industrial use.

"(The decision) will most likely be late April or May," CRE spokesman Victor Ochoa told Reuters. "I think it will happen."

The terminals will be used to convert imported LNG -- super-cooled gas condensed into a more compact liquid form -- back into gas for sale to the Mexican and U.S. markets.

Shell signed a deal last year to build a terminal at Altamira on Mexico's Gulf coast, and three more plants are on the table.

Marathon Oil Corp. and a 50-50 joint venture between Shell and Sempra Energy are vying for plants in Baja California. French-owned Tractebel and Spain's Repsol are competing for one further south at Lazaro Cardenas.

If Chevron gets the thumbs up it could leapfrog over rival Marathon, which has yet to win a permit to build an LNG plant on a plot of land it is eyeing near Tijuana, in Baja California, amid pressure from environmental groups.

"We received a CRE permit last May, but we have not applied yet for the land use or environmental permit," said Marathon spokesman Paul Weeditz.

Ochoa said he did not expect Marathon's project to succeed due to fierce local opposition.

But Weeditz said Marathon remained committed to the plant. "It's a very competitive landscape. Other companies are making progress. We have not made the progress we hoped to but we continue to be interested in this project."

He said Marathon was talking to local communities about its plan to combine the LNG plant with a gas-fired power plant, a desalination plant, a wildlife sanctuary and a waste-water treatment facility to provide coolant for its power plant.

Baja California, with its beaches and wildlife, is a big draw for tourists, and its bays are used by gray whales as breeding grounds, which Ochoa admitted could prompt opposition to the Chevron project from ecologists.

Companies have been reluctant in the past to invest in LNG because of the high up-front costs of plants needed to cool the gas to its compact liquid form, as well as shipping costs.

But rising demand and higher prices are luring foreign companies keen to get a slice of the north American market.

Shell and Sempra, which initially bid separately for plants in Baja California, hope to have combined their business plans into one by mid-2004 and already have some permits under their belt, Shell spokeswoman Barbara Blakely said on Tuesday.

Regarding the Lazaro Cardenas plant, for which a decision is pending, industry sources expect Suez-owned Tractebel and Repsol to end up running it together through a joint venture.

LNG imports are seen accounting for 15 percent of the total U.S. natural gas supply by 2025, a huge increase from today.

Mexico, despite being rich in the hydrocarbon, imports 14 percent of its natural gas due to poor investment in its fields. Ochoa said, however, he doubted demand was sufficient for a fifth LNG plant in Mexico.(*)