NEW MANZANILLO LNG PLANT: MEXICO PUTS OUT BIDS FOR

UNCLAS SECTION 01 OF 02 MEXICO 003638

SIPDIS

SENSITIVE
SIPDIS

FOR WHA/MEX, WHA/EPSC, EB/ESC, OES/ENV, AND OES/ETC
USDOC FOR ITA/MAC/NAFTA/ARUDMAN AND ITA/ENERGY DIVISION
TREASURY FOR IA: JASPER HOEK
ENERGY FOR KDEUTSCH AND SLADISLAW

E.O. 12958: N/A
TAGS: ECON ENRG EPET MX
SUBJECT: NEW MANZANILLO LNG PLANT: MEXICO PUTS OUT BIDS FOR
SUPPLY AND CONSTRUCTION

REF: A. 05 MEXICO 05260


B. 05 MEXICO 02370

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SUMMARY
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1. (SBU) The GOM published June 6 a solicitation for bids to
construct a liquefied natural gas (LNG) storage and
re-gasification plant at Manzanillo on Mexico's west coast,
and another solicitation to supply LNG to the plant. Bids
are due in by January 16, 2007. GOM officials and experts
identify Peru, Australia and Russia as likely sources of LNG
for the new facility, which will supply power to two western
Mexican cities and help diminish the national gas deficit.
Of all other LNG projects currently under consideration,
Chevron's Coronado plant appears closest to realization, but
has been put on hold due to a lack of supply. GOM officials
expect Mexico's July 2 presidential elections may slow the
momentum of the Manzanillo project, but that it will
ultimately get back on track. End summary.

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MANZANILLO BIDS DUE BY JANUARY 16, 2007
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2. (U) The GOM solicited bids June 6 for two projects -
supply of liquefied natural gas (LNG) to a new LNG plant at
the western port of Manzanillo, and construction of a storage
and re-gasification plant of sufficient capacity to deliver
0.5 bcf/day of gas. Bids are due by January 16, 2007.
Francisco de la Parra, Manager for Natural Gas at the Federal
Electricity Commission (CFE),told Econoff the GOM
anticipates signing these contracts by February/March 2007.


3. (SBU) The delay in announcing the bids, originally due to
be released earlier this year, was due to "bureaucratic
uncertainty," according to Parra. The GOM needed to obtain
necessary authorizations from the ministries of Finance and
Energy, and PEMEX. Parra explained that CFE was doing its
homework during this period, trying to identify probable
sources of LNG for the Manzanillo plant. CFE was anxious to
put out the bids before the upcoming July 2 Mexican
presidential elections, to allow the project to acquire a
presence in the market and a "name," as Parra put it, which
would make it easier to obtain buy-in from the next Mexican
presidential administration.

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LNG LIKELY TO COME FROM RUSSIA, AUSTRALIA AND/OR PERU
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4. (U) Parra said the GOM had had some difficulty identifying
sources of gas in the current seller's market, and had
considered Australia, Peru, Indonesia, Malaysia, Russia and
Qatar as potential sources. Peru, in Parra's view, is a
"reliable partner," and a country from which it is easier, in
logistical terms, to transport LNG to Mexico. He said the
GOM is also looking at Malaysia, drawing reassurance from the
fact that Sempra, a "reliable" American company, in Parra's
words, has already contracted there. Parra said that BP,
Shell, and Chevron Texaco were interested in transporting
Australian gas to Mexico, while Repsol had expressed interest
in exporting Peruvian gas to Manzanillo.


5. (U) Parra stated that CFE would like to contract with a
company that has a solid credit rating and could guarantee
supply of LNG for 15 years. The GOM is particularly
interested in integrating supply from diverse markets, such
as Australia, Peru, and Indonesia, and it would like to see
the company that signs the contract specify in its portfolio
what sources it would tap. Tanya Ortiz Mena, Project
Director for Sempra Energy, told Econoff that of all the
supply alternatives currently under consideration, Russia
(Sakhalin),Australia, and Peru are the most likely choices.
Peru, Ortiz noted, has fewer alternative destinations for its
LNG, rendering Mexico an attractive market. Ortiz remarked
that Indonesian gas is already "contracted out."

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GOM PUSHING FOR DISCOUNTED RATE - CALIFORNIA INDEX
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MEXICO 00003638 002 OF 002



6. (U) Parra observed that Mexico is seeking to buy LNG at a
discounted rate of 20-30 cents cheaper than the U.S. Henry
Hub index. He believes sellers will be interested in
Mexico's offer because his country offers proximity, and
alternative destinations to U.S. terminals, which are
currently operating at full capacity. Ortiz thought the GOM
would be amenable to accepting the slightly discounted
Southern Californian "Social Border" index, which, as of June
22, was USD 5.25/mmbtu, in contrast to Henry Hub, which stood
at USD 5.51/mmbtu the same day.


7. (U) Parra said the Manzanillo LNG plant is slated to
provide energy to four western Mexican power plants which are
due to come on line by 2012 and will supply power to the
western cities of Manzanillo and Guadalajara. The GOM has
targeted the Manzanillo plant for conversion from very
polluting fuel oil to natural gas, and for an expansion in
its capacity. The GOM plans a third project in the future,
which will involve laying a 260 km pipeline, with a capacity
of 1,000 million cubic feet per day, to transport gas from
Manzanillo to Guadalajara. This would link Mexico's west
coast to the gas pipeline grid emanating from its east coast.
The additional gas supply would help Mexico erase some of
its national gas deficit. Mexico, a net exporter of gas
before 2000, is now an importer from the United States,
importing 600-800,000 mmbtu/day from 2000 until the present
time. The nation's natural gas demand grew by 8.2 percent in
2004 and is expected to grow at an annual average of 5.2
percent until 2014, according to a Secretariat of Energy
document describing Mexico's natural gas market prospects
during 2005-2014. In absolute terms, national demand is
expected to reach 9,493 mmcfd in 2014, from 5,722 mmcfd in
2004, according to the same document.

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NO OTHER LNG PLANTS TO COME ON LINE ANY TIME SOON
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8. (SBU) While Chevron-Texaco has received a permit to
construct its LNG plant at Coronado in Baja California, the
company has refrained from going ahead with the project due
to delayed production of gas from its fields in Australia.
Parra described the chances that a planned 1.3 bcf/d
re-gasification facility project at Puerto Libertad in Sonora
on the Gulf of California would be built as "very firm," with
supply slated for the Arizona market, but added that the GOM
is first waiting to see how Manzanillo comes along. Ortiz,
however, observed that Puerto Liberdad has no suppliers.
Parra noted that the LNG import terminal in Topolobampo,
Sinaloa state, is next in line after Manzanillo to be awarded
by the GOM. Ortiz remarked, however, that this project is not
"going anywhere," because there are no companies interested
in pursuing it.


9. (SBU) Ortiz observed that her company is satisfied with
the progress it has achieved at its Ensenada plant. In
approaching Ensenada, her company, Sempra, built on its
familiarity with the gas industry in Mexico, which it had
derived from prior work on infrastructure projects (gas
pipelines and distribution and power generation) in Baja
California. She reported that the federal and state
governments in Baja were very supportive, but that the local
government had "issues" with the fact that electricity rates
had remained high in the region. Ortiz observed that Sempra
expects to start delivering 1 bcf/day of gas from January
2008, which it will import, in LNG form, from Indonesia and
Russia.


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GARZA