INTERVIEW: Mexico Pacific in 'advanced' LNG contract talks for Train 3 Saguaro Energia project

Mexico Pacific Limited is in an "advanced negotiation stage" to contract 1 million mt/year of LNG from Train 3 of its flagship Saguaro Energia facility and could commercially sanction the unit within six months of a final investment decision on the project's initial two trains that the company is targeting by year-end, company President and chief commercial officer Sarah Bairstow said.

"There is a great amount of appetite from Asian markets...We are completely sold out of Train 1 and Train 2, and we only have 1 million mt/year left on Train 3, of which we expect to have contracted very shortly," Bairstow told S&P Global Commodity Insights in a recent interview.

The Saguaro Energia project, located in Puerto Libertad, Sonora, Mexico, has a nameplate capacity of 15 million mt/year, with production targeted in the second half of 2027, Bairstow said, sharing that the company aims to be "well into construction next year."

"Our lead sponsor is Quantum Energy Partners," Bairstow said. "So, we don't need to seek equity from our customers at this point. However, strategic alignment with our customers is very important to us."

"Given the fundamentals of our project, which is essentially leveraging low-cost Permian gas and liquefying it on the West Coast, much closer to Asian markets, we've had a lot of commercial success [with customers]," she added.

In February, Mexico Pacific signed two 20-year sale and purchase agreements with ExxonMobil for a combined 2 million mt/year of LNG. In March, Mexico Pacific inked its third long-term SPA with Shell, ramping up Shell's initial 2.6 million mt/year commitment from Train 1 and Train 2 to also include over 20% from Train 3 for a total commitment of 3.7 million mt/year. The company also has long-term SPAs with ConocoPhillips and China's Zhejiang Energy International Limited.

"All our contracts are 20-year tenure and so we remain very long-term focused," Bairstow said.

"We offer both Henry Hub and Waha. The Waha fundamentals are so strong...However, we also remain competitive to the Gulf Coast on the Henry Hub index."

Forging ahead, sustainability focus

"We are among the most advanced pre-FID North American projects and a lot of that has been really based off those key fundamentals for us," Bairstow said.

"If you take the lowest priced gas basin -- the Permian Basin -- and the West Coast liquefaction point that avoids the additional Panama Canal cost and delay, and the cheapest shipping route in Asia, it results in the lowest price of LNG, not only from North America but also globally into Asia," she added.

Securing an export permit from the Mexican government has proven a challenge for multiple developers who proposed LNG export projects in Mexico, but Mexico Pacific said it received an export permit from the Energy Secretariat in the first half of July.

In addition to the three anchor trains, Mexico Pacific also has growth plans for a further three trains, doubling the total LNG capacity of the facility to 30 million mt/year.

"We expect to sanction those [the next three trains] over the next 18-24 months as well," Bairstow said.

Sustainability has been a key feature while developing the project, Bairstow said, adding that the pipeline facility has been consciously designed to avoid population centers, environmentally sensitive areas, and all indigenous areas.

Bairstow also touted the emissions profile of the project as an advantage.

"Firstly, we're taking our gas from the Permian Basin. The gas specification for us is incredibly low CO2 when compared to other gas basins in the US," Bairstow said.

"Secondly by liquefying on the West Coast, we cut the shipping distance in half. So that reduces the shipping emissions by nearly 40% and then lastly, we are an Asia-Pacific faced project with direct customers in China, where production will be directed for coal to gas switching," she added.

New LNG supply vital

In the past year or so, the market faced unprecedented uncertainty and price volatility really fed off that uncertainty, Bairstow said.

While the market has done a remarkable job of tackling some of that, new supply stays key to thwart risks related to restricted LNG availability.

"We see another 70 million-80 million tons of LNG needing to be sanctioned in the next 12 months or so to continue to provide more stabilized pricing for the [global] market through to 2030," Bairstow said.

"When you look at key projects where that will come from, we have seen [threat of] disruptions from Australia, there are some depleting resources through a great part of Asia and while Qatar has some expansion plans ... predominantly, we will see that growth from North America," Bairstow said.

When it came to competing with Qatar, Bairstow said that if Europe can become a little more comfortable with moving out the tenure of their contracts slightly, then the US will continue to be competitive.

At the macroeconomic level, Asia continues to stay the main engine for LNG demand growth. Various factors -- the region's fragmented nature, limited interconnectivity between countries in the region, restricted indigenous resources that are depleting at a relatively steady pace and its positioning for significant carbon emissions reductions through coal to gas switching -- make it a harbinger of LNG demand, Bairstow said.