Crawl, Walk, Run: Inside the Race to Turn Latin America Into a Global LNG Force

NGI (00:01.73) Welcome listeners to another episode of NGI's Hub and Flow Podcast. I'm your host, Chris Lenton. I was recently at the Mexico Gas Summit in San Antonio, Texas, and while I was there, I recorded a conversation I had with Sergio Chapa, senior LNG analyst for the Americas at Poten & Partners.

The conference was a good way for me to speak to marketers and users, producers, and analysts and catch up on what's happening in the cross-border natural gas trade between the United States and Mexico. The big news that everyone seemed to be talking about was a push from the Mexico government to develop unconventional resources to try to minimize its dependence on US natural gas. That could help push up domestic supply, but some of the i at the event cautioned that developing shale was all about cost efficiencies and it would be tough to compete with US producers on pricing.

End users of natural gas in Mexico highlighted once again the lack of storage and and general operational flexibility there. there still is no secondary capacity market for molecules or transportation in Mexico. the energy management director at a major power producer in Mexico told me that if, for example, they had contracted excess excess gas, they still had to send it back and sell it in the United States. Either way, the natural gas market is growing in Mexico, mainly through electric power production as new combined cycle units come come online.

natural gas combined cycle plans accounted for sixty one percent of Mexico's power output in twenty twenty five. And despite a a push from this government for renewable power, that share is only growing. Mexico's gas association, AMGN, sees the Mexico market growing to as much as 15 BCF a day in the next 10 years from around 8.5 to 9 BCF a day today.

There's the data center push in Mexico also adding to demand. And another element is LNG. Mexico could potentially be a platform for re-exporting US gas to Asia. Of course, that's NGI (02:13.

127) already a reality. Sempre's Energía Costa Azul is about to come online and would be the first major export project on Mexican shores. I talk about Costa Sul and a lot more with with Sergio. Just a heads up, we mentioned the Strait of Hormuz blockage a few times.

That such situation has obviously changed since then. But the outlook hasn't really. And one further point of interest, NGI has launched a new product in Entropic Analytics, which maps out North American pipelines and allows you to see flow data for all 180 plus interstate natural gas pipelines in the United States and Canada. You can set pipeline alerts and notices for more than 200 inter and intrastate pipelines, and compare flow data with NGI's price indexes.

Entropic Analytics is a fantastic new tool that takes complex energy markets data and transforms it into structured decision-ready intelligence. Request a demonstration at natgas intel dot com slash entropic. That's natgasintel dot com slash entropic. As always, please send in your questions or comments to my email Chris dot lenton at natural gasintel.

com. And now here's Sergio Choppa. NGI (00:02.018) So we're here with Sergio Chapa in San Antonio, Texas at the Mexico Gas Summit.

and I thought I would grab him to do a podcast. He's been on stage all morning. did a fantastic job. Sergio, I speak to you about once a year on the LNG industry, in Latin America, but also globally.

what do you think has sort of been the the big theme of LNG so far this year? Chapa So yeah, happy to be here, Chris. Big fan of the podcast. Fan of the pod.

so the big thing this year, especially with everything going on globally, like we're talking straight up Hormuz closure. you know, after Russia Ukraine, we talked about energy security. LNG, you know, you you need to get LNG have your supply secure to account for other unforeseen variables like pipeline gas going away from Russia. Well now it's supply diversity is the new mantra in the LNG intr industry globally.

Yeah, and you see that playing out in a number of ways across global markets. Everybody kind of scrambling to to diversify their LNG supplies. NGI Yeah. GLUT coming coming into the global energy market, and that's sort of flipped.

Tell me a little bit more about your your projections going forward now given everything that's happening in the Strait of Hormuz. Chapa Right. So I mean at Potent Partners, part of our job, we do two types of forecasts. Short-term is two-year, right?

And then we do a long-term, twenty-year. In our kind of on our on our long term forecast we had twenty twenty six, twenty sevens kind of before all this, you know, straight aforementioned closure, we had forecast a supply glut happening kinda around twenty seven, kind of beginning this year, but then really going into effect in the summer of twenty seven and then especially in the summer of twenty eight. a global supply glut of LNG based on all the projects, you know, under construction right now, commissioning, coming online.

When you take about seventy or eighty MTPA off the market and you know, that that that created a a a a div a a shortfall, a supply shortfall instead. So you went from a supply glut to a shortage yeah in a matter of time. So right now, like we're working off a base case of a of a conflict or a closure of six months. We did also prepare a forecast for a twelve month closure as well.

So NGI (02:28.851) Mm-hmm. Chapa more of a long term one. And and and like I said, so we went from a surplus to a to a shortage and now you have people trying to scramble, trying to find replacement cargoes.

You have LNG buyers thinking like, hmm, maybe I shouldn't just get all my LNG from one spot that could be shut off at any time. Yeah. you you you want that supply security and you want supply diversity. NGI Yeah.

And it's also led to some FIDs in the United States. You know, let's let's switch over to Latin America, which is what we're here to talk about and sort of your expertise. Energia Costa Azul could be starting up in the next few weeks. and you know, you have Altamira functioning, it's sort of the new fortress project.

Do you see more FIDs in Mexico for LNG or even Latin America, you know, to export that LNG to the world as a result of what's happening? Chapa Right. Yeah, no. I mean it's really exciting.

Like at Energia Costa Zul in Baja California, they they already did start production. I think it was last weekend. and so I think what you'll see pretty quickly is how long it takes to fill that storage tank, how long it takes to to do the first cargo. I'm told it's it's weeks rather than months.

of course Semper's always been forecasting C O D by by the summer this summer. NGI Mm. Chapa Well here we are. It's it's June already.

NGI Yeah. Chapa So and we've already started production. I think you would expect like a big production. I think you would see like Claudia Scheinbaum attending like the first cargo sail away or or something like that.

I I think that's very conceivable in Mexico. Regarding more FIDs, we do have an FID ready project in in in Mexico, Amigo LNG, at least train one's completely sold out. That one is is just has a couple more hurdles to overcome. I I'm sure you saw that the legal challenge, the the amparo NGI yeah Chapa The injunction that was that was applied against the project by the courts from based on environmentalist lawsuit.

I I I was told that that that that'll get resolved and the project will still move forward. So that's the only project that we're really expecting to FID in Mexico over the next twelve months, really. So however long it takes to resolve that legal issue, then it can finally move forward. Quite a way off from NGI (04:52.

294) The projection you made a couple of years ago when you said Mexico would become the fourth largest exporter in the world or potentially could. Chapa Yeah, I said it was it it was always asterisk. This is like the bold case scenario, like Mexico could become the fourth largest. Of all these projects, make it.

Well no, they did not all make it, but yeah. But it'll it'll still happen. Mexico will still increase export capacity, of course re exporting US gas. NGI Yeah.

yeah. Well let's let's switch over to to regasification, which is sort of what you were you were saying is sort of the future of of the business. Right. in many ways.

one thing that struck me from your presentation was just how little energy per capita countries in in Latin America sort of used in comparison to the United States. It's just so much room to to sort of grow and that will will inevitably occur with with with economic growth. and also looking at sort of the pricing of of LNG, you you mentioned that Mexico paid as low as $4/MMBtu back in 2019. Argentina paid as high as $40.

So there's there's quite a quite a contrast there. Talk to me about the sort of the regasification situation and which countries are sort of building out that capacity. Chapa Right. I mean there's there's actually a lot of regasification capacity in Latin America.

Let's just I'm just gonna round it up. A hundred MTPA, right? It's actually ninety something, but let's just say a hundred, right? Just for math, easy math.

And but the problem is with Latin America, a lot of these countries not the it's not a problem, I'm sorry. It's it's not a problem, but mean the th the the thing is with Latin American countries, a lot of them are in tropical and they have a lot of hydroelectricity capacity. So LNG was just always just the backup, right? So you have a hundred MTPA of re-gasification capacity.

But but really the utilization rates we're talking like 20%, 15%. In some cases at some import terminals as low as 10%. Why? Because they don't need it.

when there's a drought. They need it and that's when they import. So how do you how do you anticipate for that? Like with all this regas capacity, you see a lot of LNG importers in the region contracting very small volumes of for long term.

So you see like point five MTPA, point eight MTPA, twenty years, seven years, ten years, something like that. And then then the rest they buy on the spot. Those is prices that you saw, Mexico paying four dollars in twenty nineteen, that was spot price. Yeah.

Chapa (07:14.188) So and that forty dollars you mentioned that Argentina paid after the Russia Ukraine, that's spot price. Uh-huh. The best way, and I'm gonna we emphasize this all the time at Potent and Partners is the best way to to mitigate the volatility in the spot market is long term contracting.

NGI Sure. Which is not really the norm in Latin America, is it? Right, right. Chapa Yeah.

Like I said, out of that hundred MTPA capacity, you only have maybe a dozen contracts that cover like ten or twelve MTPA. So you have all this ability to import, but actually what actually gets imported is much, much lower. And even a smaller number is held on long-term contracts, which save you money. Even if you're doing like DES and that's you know where the seller provides the ship and does everything for you, the a lot of the Latin American buyers don't want to develop their own fleet.

You know, they're just end user utilities. They don't want to manage a fleet and have to deal with you know unions and crews and all this stuff they in shipping, they they let the seller handle it. And and so you p you pay a little bit of a premium on that on that gas. Instead of paying like two dollars, you're paying four dollars or six or eight or whatever.

But but but you also save money by not having to manage your own ships or manage your own fleet. So and then at the end the day, it's still cheaper than paying that forty dollars, huh? That six or eight dollars. Yeah, and you know, with all the the volatility in the world right now, you know, we've seen ship sort of diversions, you know, that were meant to ships that were supposed to go to Latin America end up in Europe or Asia where they're paying a lot more money, obviously.

yeah, yeah, no, I'm really glad you brought that up actually because right now with with the straight of Hormuz closure, JKM, TTF prices are like $16, $17. So if you're a spot LNG buyer in Latin America, be it in Mexico, Colombia, Brazil, anywhere, you're gonna have to compete for those prices. Like in I think in Argentina, You know, you you'll see having them to compete with Europe right now. It's the it's the South American winter.

Mm-hmm. So right now, Argentina's very active in buying spot cargoes with all these vendors and everything. But guess what? They're paying seven they're having to pay in the seventeen dollar range.

It's a lot better than that forty dollar range after Yeah, but it's still still a lot of money, especially for a country that has all that gas. Right. I mean Vaca Muerta's supposedly, you know, the next Permian Basin, and yet they're they still have to import NGI (09:29.983) keep the lights on every single yeah.

asterisk coming soon. I think I think they need to still grow that production. And in the meantime, they're going to keep that import capacity for seasonal imports during the South American winter. Yeah.

Let's close this by talking about Argentina. I mean this is sort of that's the big story in in Latin America in terms of you know the Mexico L LNG would basically be re exporting US LNG. I mean the Argentina would export its own natural gas produced at home. What are you hearing about the projects there and and how they're advancing?

it's very exciting. so the first project up for exports in Argentina is the Southern Energy project Southern Energy SA, everyone calls it SESA. Mm-hmm. so that's a coalition and I I love that they did this.

One of the things in Latin America you always see and just breaks my heart is that everyone competes against each other. You know, like you have your own project and you're not gonna work with anyone else. It's just your project and You're competing for the same contracts, the same off takers, the same everything. So instead, this is a this is a joint venture project between upstream producers and and Golar LNG, the the the the FLNG ship company.

So they're gonna bring an FLNG ship next year to Argentina. And during the South American summer, when there's a surplus of gas in Argentina, that's when they're gonna begin exports. And I think you'll see seasonal exports starting in twenty seven. in twenty eight, the second F LNG arrives and you'll see it again.

the idea is they can begin now with current infrastructure, current pipelines, you know, current gas production seasonally, right? But the idea is to grow and this is exciting to watch, I mean, just sitting on the sidelines, is is to see how like Vaca Muerta production grows between now and the end of the decade. And then they're also already started construction on the dedicated gas pipeline to do year-round exports. when ready.

so so for now things can be handled, you know, on a seasonal basis. but then the idea is to go full year round. Yeah. With supporting infrastructure, pipelines and production in Argentina.

And and then then maybe Argentina won't need that FSRU anymore. you know, it's already held on a on a two year renewable contract. Okay. So we'll we'll see what happens at the end of that contract and whether they keep it.

Yeah. I I and I you know I if I were them I would keep it too NGI (11:56.976) It makes sense. I mean Argentina is a country that relies on gas, kind of like Mexico.

A ton of its electric power electric power comes from gas. it's it's the most important fuel by far. yeah. Yeah.

And then there's also the YPF separate, yeah. Shell, any Yeah, XRG, yeah, everybody. Well Shell's n not currently in it. That was but y yeah, it's it's YPF, E and I, and then XRG.

Okay. And then maybe other partners come back in. they've they've talked to companies like like Mid Ocean. Maybe Shell will come back, we'll see.

But but yeah, that that's just another project. Right now, just beginning kind of modestly in Argentina. The the big project with YPF, E and I and all them is just a monster. It's like twelve MTPA, two ships, six MTPA each.

let's just you know, crawl before you walk, walk before you run type of thing. Let's just kinda Can I just do it gradually? And I I think that's what they're they still want to do the F I D for the big, you know, YPF E and I project by the end of the year. But they the I mean, it takes years to to build these ships and bring and then sell the off take.

The the good news is though for them is that with in this post Iran world, supply diversity looks good for them. Yeah. Because it's another source of LNG. It's a it's a you're you're checking that box.

You're not getting it from one region. You're getting it from another region. So Yeah. mean in many ways the winners from all this could be this hemisphere, right?

You know, not no not only natural gas, but you know, extra barrels from of of oil from Brazil and Guyana and and Venezuela and yes, Suriname, Argentina, Mozambique, Canada, and even Mexico to some extent could benefit from that. And also you mentioned this, you know, Trinidad, which decommissioned its its first train, but you know, they they could be taking on some of this fen Venezuelan natural gas and filling up those Trains once again, right? yeah, that's the idea. Yeah, yeah.

in fact they're they're launching a new oil and gas conference in in Venezuela this year in September. hope to see you there. I'm invited. that'd be great.

And the idea is like to to increase production of natural gas in Venezuela, export it to Trinidad and Tobago, and then also export export some via pipeline to Colombia, which which needs it's facing a domestic shortage. huh. NGI (14:16.922) All right, Sergio, we're gonna leave it there.

Awesome having you in person. Thanks so much. And I look forward to doing this chat again in a year's time. Chapa Sure.

Sure. All right. Anytime.