Chief Commercial Officer
Mexico Pacific Limited (MPL)
14:50 - 15:15
Wednesday, 18 September 2019
S1.5 RESERVE: Mexico LNG: The Next North American LNG Disruptor?
Up until the start of the decade, the LNG market (the Asia Pacific region in particular) was a rather parochial beast with LNG producers maintaining tight control over the supply chain and how buyers could subsequently monetize their contracted LNG deliveries. Primarily oil linked, DES ‘point-to-point’ contracts with next to no buyer or destination flexibility enabled LNG producers to maintain a stronghold over the market which, in turn, largely prevented spot market liquidity growth and contracting alternatives. If there was a change in the approaching wind, it felt nothing more than a comfortable light breeze.
That was, of course, until the Asia Pacific market experienced the first wave of truly disruptive LNG supply offerings in the form of Cheniere Limited’s Sabine Pass business model and LNG marketing philosophy. Cheniere, to their credit, linked growing Asia Pacific end user frustration with expensive oil-linked LNG contracts (oil was hovering around US$100 bbl/day) and the growing shale gas story playing out in the US Permian. Capitalizing on the opportunity, Cheniere side swiped traditional producers by hitting a sweet spot with:
- competitive landed LNG prices into Asia backed by reliable, cheap US shale gas;
- pricing diversification away from oil; and
- flexible FOB contract terms.
While traditional producers continued to hold on to their more traditional LNG marketing philosophies and point-to-point contracts, in next to no time, the first wave of GOM projects were taking FID and shaking up the Asia Pacific LNG market.
However, as is often the case in physical markets, the supporting physical infrastructure capacity has lagged the level of commodity uptake by the market. In the case of US GOM LNG, the primary bottleneck is the Panama Canal.
Second wave US GOM LNG projects look and feel remarkably like the first wave, offering competitive landed LNG prices into Asia backed by reliable, cheap US shale gas, pricing diversification away from oil, and flexible FOB contract terms. However, they compound, rather than provide a solution to Panama shipping risks and costs.
North American Pacific coast alternatives exist in the form of LNG Canada which took FID last year and the proposed Jordan Cove, however, neither bare the attractive genetic composition of US GOM projects. Enter GOM v2.5 - Pacific coast Mexican LNG.
Located just south of the US border with existing US shale gas pipeline connectivity at an advantageous Pacific liquefaction point, Mexican LNG provides an opportunity to monetize/swing US shale gas to achieve some of the lowest landed cost LNG in Asia without the shipping distance, Panama delays or GOM weather events.
Market disruption is often born out of building frustration with the status quo. Cheniere did it leading the first wave of US LNG exports. Could Mexico LNG be placed to lead the next wave of disruption? Time will tell. In the interim, perhaps the second wave of US LNG exports should be re-badged the second wave of “North American” LNG exports.