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LNG Regulatory Issues
Alberto de la FuenteComisión Reguladora de Energía
La Jolla, CaliforniaJanuary 30, 2004
13th Annual Latin American Energy Conference
Institute of the Americas
2
Index
I.I. Why LNG?Why LNG?
II.II. LNG Projects in MexicoLNG Projects in Mexico
1.1. Where We StandWhere We Stand
2.2. Next StepsNext Steps
III.III. Lessons LearnedLessons Learned
4
Natural Gas Demand Drivers
Others4%
Petroleum29%
Industrial
22%
Electric
45%
2012
Natural Gas Demand by
SectorOthers3%
Petroleum
41%
Industrial26%
Electric
30%
2002
4,855 MMCFD
9,389 MMCFD
Source: Energy Prospective, Ministry of Energy, 2002
5
Demand for natural gas will exceed national production
6.8 bcfd
9.4 bcfd
Su
pp
lyS
up
plyD
eman
dD
eman
d
2.6 bcfd
2012
Alternatives:
…Natural Gas Demand Drivers
Source: Energy Prospective, Ministry of Energy, 2003-2012
6
1) Efforts to increase natural gas production in Mexico
Mexico is currently producing 4.5 BCFD
? With Multiple Service Contracts & Strategic Gas Program, Pemex estimates that production will increase to 5,800 MMCFD by 2006 and 7,500 MMCFD by 2010
*Source: PEMEX Gas, Bussiness Plan, 2002
4477
4800
1,000
6500
1,000
2002 2006 2010
Pemex Production Multiple Service Contract
7
? Interconnections between Mexico and the U.S. amount to 3.3 bcfd of cross-border firm capacity.
2) Pipeline Interconnection Infrastructure
I
III
VIII
IV
V
VI
II
VII
LNG
San Diego-Mexicali-Rosarito (0.3 Bcfd)
Blythe-Yuma-Tijuana(0.4 Bcfd)
Wilcox-NacoAgua Prieta(0.36 Bcfd) Norteño-
El Paso-Samalayuca0.4 Bcfd)
Eagle Pass-Laredo (Tidelands Oil)0.05 Bcfd
EPFS-Arguelles0.1 Bcfd constrained
•TETCO(Duke)-Reynosa0.15 Bcfd constrained•Tennessee-Reynosa0.35 Bcfd•Tennesee-Rio Bravo0.4 Bcfd
Coral-Arguelles0.35 Bcfd
LNG
LNG
Del Rio-Acuña0.01 Bcfd
KM-Monterrey-Saltillo0.3 Bcfd
Sistema Nacional de Gasoductos (SNG)
Ductos del sector privado
Ductos de Nogales(0.1 Bcfd)
Futuros ductos del sector privado
Ductos en EUA
USA
Mexico
Nueva interconexiòn0.35 Bcfd
Posible almacenamiento
LoopChihuahua0.3 Bcfd
Tama-Centro0.4 Bcfd
LC_Manza-Nillo 0.3 Bcfd
Valladolid-Cancun0.1 BcfdGuadalajara-
Manzanillo0.3 Bcfd
Sn. Fdo. 1 Bcfd
Bajamar- Rosarito(0.5 Bcfd)
Monterrey-SLP0.3 Bcfd
Frontera-Guaymas-Mazatlan0.5 Bcfd
Ductos del sector privado (prefactibilidad)
Palmillas -Toluca 0.3 Bcfd
Gas Zapata0.2 Bcfd
I
III
VIII
IV
V
VI
II
VII
LNG
San Diego-Mexicali-Rosarito (0.3 Bcfd)
Blythe-Yuma-Tijuana(0.4 Bcfd)
Wilcox-NacoAgua Prieta(0.36 Bcfd) Norteño-
El Paso-Samalayuca0.4 Bcfd)
Eagle Pass-Laredo (Tidelands Oil)0.05 Bcfd
EPFS-Arguelles0.1 Bcfd constrained
•TETCO(Duke)-Reynosa0.15 Bcfd constrained•Tennessee-Reynosa0.35 Bcfd•Tennesee-Rio Bravo0.4 Bcfd
Coral-Arguelles0.35 Bcfd
LNG
LNG
Del Rio-Acuña0.01 Bcfd
KM-Monterrey-Saltillo0.3 Bcfd
Sistema Nacional de Gasoductos (SNG)
Ductos del sector privado
Ductos de Nogales(0.1 Bcfd)
Futuros ductos del sector privado
Ductos en EUA
USA
Mexico
Nueva interconexiòn0.35 Bcfd
Posible almacenamiento
LoopChihuahua0.3 Bcfd
Tama-Centro0.4 Bcfd
LC_Manza-Nillo 0.3 Bcfd
Valladolid-Cancun0.1 BcfdGuadalajara-
Manzanillo0.3 Bcfd
Sn. Fdo. 1 Bcfd
Bajamar- Rosarito(0.5 Bcfd)
Monterrey-SLP0.3 Bcfd
Frontera-Guaymas-Mazatlan0.5 Bcfd
Ductos del sector privado (prefactibilidad)
Palmillas -Toluca 0.3 Bcfd
Gas Zapata0.2 Bcfd
8
Net Importer
Net Importer
Net Exporter
526
10,492
732
5
176
223635
Source: U.S. DOE-EIA, Annual Energy Review 2002
Natural gas imports and exports (2002, mcfd)
2) …Pipeline Interconnection Infrastructure
1.02.03.04.05.06.07.08.09.0
10.0
J F M A M J J A S O N D J F M A M J J A S O N D E F M A M J J A S O N D J
LNG Projects in MexicoNatural Gas Prices (Houston Ship Channel)
(Dollars/MMBtu)
2004
2001 2002 2003
1 2 3 4 5 6 7 8
12
1 Spring 2001 – Prices reached 9.84 USD/MMbtu and companies expressed their interest to build LNG Terminals in Mexico
2 Autumn 2001 – CRE developed the regulatory framework for LNG Terminals in Mexico
3 August 2002:• CRE published NOM-EM-001-SECRE-2002• CRE issued a guide for permit applications
• Marathon Permit Application
6 April 2003 -Marathon was granted the first LNG storage permit in Mexico
4 Sep, Oct & Nov 2002 – CRE received 4 more application permits (Sempra, Shell - Baja & Altamira-, Chevron - Texaco Onshore)
5 By December 2002 CRE is evaluating 5 proposals
7 July 31, 2003 – CRE granted 2 LNG storage permits to Shell, one for Baja California and the other for AltamiraAugust 7, 2003 – CRE granted a LNG storage permit to Sempra Energy8
• Two types of projects
— Bid driven (i.e. Altamira)
— Market driven (i.e. Baja California)
• Regulatory Objectives:
— Safety
— Open Access
— Cost-Based Tariffs
• Several authorizations required
LNG in Mexico
13
Altamira•Shell
Cd. Pemex
Cd Juarez
Chihuahua
Monterrey
Reynosa
Matamoros
TolucaD.F.
Poza Rica
Cd Madero
MexicaliTijuana
RosaritoNaco
LNG Storage Permits Granted
14
Baja California•Marathon (Tijuana)•Sempra (Ensenada)•Shell (Ensenada)
15
LNG Storage Permits in Mexico
Over the last 6 months, the CRE granted 4 permits to build and operate LNG receiving facilities in Mexico
? Three are located in Baja California and one in the Gulf of Mexico
? Potential total firm regasification capacity could be 3.6 bcfd and peak regasification capacity of 4.3 bcfd
? Projects could begin operations in 2006 and 2007
? Open Access requirement on non-contracted capacity
? Storage and regasification tariffs based on cost of providing service
? Projects will diversify sources of gas and help stabilize prices
? Full containment tanks
? Investment commitments, up to 2.4 Billion USD
17
Offshore LNG Application
Permit Permit ApplicationApplicationChevronChevron--TexacoTexaco
Adittional Adittional Information Information
DeliveryDelivery
AdmissionAdmissionto Formal to Formal Review Review
andandPublicationPublication
Proposal Proposal EvaluationEvaluation
DecisionDecision
10/07/02 12/10/02 01/21/03 2004
Chevron-Texaco de México
Offshore Offshore ApplicationApplication
On July 29, 2003 ChevronTexaco submited a modification regarding the site for the LNG storage facility to place it in the Pacific Ocean, nearby the Coronado Islands
Cd. Pemex
Cd Juarez
Chihuahua
Monterrey
Reynosa
Matamoros
Burgos
TolucaD.F.
Poza Rica
Cd Madero
MexicaliTijuana
RosaritoNaco
Lázaro Cárdenas?
Baja California(Offshore)
Other Possible LNG Storage Terminals
18
Manzanillo?
Topolobampo?
Península de Yucatán
Salina Cruz
19
Comité Consultivo Nacional de
Normalización de Gas Natural
Comité Consultivo Nacional de
Normalización de Gas Natural
Working Group
drafts the first project
CRE presents the NOM project and
MIR
CRE presents the NOM project and
MIR
COFEMERCOFEMER
Official Gazette
60 days
Public Consultation(November 19)
Official Gazette
60 days
Public Consultation(November 19)
CCNNGN responds to
Public Consultation
CCNNGN responds to
Public Consultation
CRE publishes comments in the Official Gazette
CRE publishes comments in the Official Gazette
Final NOM is published in the Official Gazette
Final NOM is published in the Official Gazette
NOM-013-SECRE-2003 for LNG Plants
Regulation for Storage Permits
20
• Technical description of the project
• Technical, administrative and financial capability of
project
• Description of safety methods and procedures for the
operation and maintenance of the system
• Non-discriminatory General Terms of Service
• Information on Potential Supply sources
• Justification of potential demand
• Compliance with NOM
Applicants must include among others:
Regulated Activities
21
CRE Permit
SEMARNAT Permit
Other
Permits
Use of Land Permit
Financing
Commercial
Agreements
23
Lessons Learned
Educate, Educate, Educate
The regulatory framework has to adapt permanently to provide stability and certainity to investors
No project is alike
Mexico has to increase its natural gas supply
LNG storage projects will diversify the sources of natural gas and help stabilize prices