* U.S. gas imports can't meet Mexican demand anymore
* Gas link with cheap U.S. is shattered as Mexico imports
* Latin America's LNG prices rise above Asia
* Demand from region may prove key to future LNG prices
By Oleg Vukmanovic and David Alire Garcia
LONDON/MEXICO CITY, May 9 Mexico is stepping up
imports of liquefied natural gas (LNG) as rising demand, falling
domestic output and pipeline bottlenecks for cheap U.S. imports
force it to pay at least four times more for added supplies.
A slump in LNG demand from top global buyer Japan has
shifted the spotlight from Asia to major Latin American
economies Brazil, Argentina and now Mexico, seeking to avert
looming energy shortages with an ambitious program of cargo
An energy crunch in March underscored Latin America's second
largest economy's growing dependence on imports to keep power
flowing, as state-run oil and gas monopoly Pemex scrambled to
buy LNG at any price in order to avert potential grid failures.
"They say we bought expensive gas but today we're worried
about the integrity of the system," Alejandro Martinez, director
of Pemex Gas and Basic Petrochemicals said in an interview,
referring to domestic criticism of the costly purchases.
Previously, gas piped in from a drilling boom in the United
States had kept import costs down but Pemex paid $19.45 per
million British thermal units (mmBtu) for a spot LNG cargo in
March, as imports from the U.S. costing about $4.40/mmBtu hit
the limit of pipeline capacity.
To help keep the lights on, state-run power monopoly CFE is
expected to award the country's biggest ever tender this week
for supply of 30 LNG cargoes to be delivered in 2013 and 2014.
Argentina, another rising LNG importer, is also snapping up
cargoes to meet its record annual demand while robust buying
from Brazil adds to the supply squeeze and lifts prices across
Put together, the rise in demand across what is now one of
the world's few booming economic zones, is one of the main
factors propping up global LNG prices. Any sign that Mexico or
the others may be able to relieve the pressure for supplies
would have the opposite effect.
Martinez said Mexico will only likely reduce those costly
imports towards the end of 2014 as major pipeline expansion
works allow more U.S. gas into the country.
That said, CFE is also re-negotiating its long-term LNG
supply deal to win discounts from producer Nigeria, Pemex's
As well as receiving cheap U.S. gas by pipe, Mexico benefits
from having some of its long-term LNG supplies tied to the same
price point, considered unusually cheap by international
Under a deal signed in the early 2000s with Shell
and Total, Mexico's CFE pays just 18-20 cent/mmBtu
above the benchmark US Henry Hub gas price for deliveries of LNG
into the Altamira terminal on its eastern coast, Waterborne
president Steve Johnson said.
US gas at $4/mmBtu is among the cheapest in the world,
compared with $15/mmBtu in Asia, $15.50/mmBtu in Brazil and
$16.80/mmBtu in Argentina, according to the most recent deals.
Mexico's latest spot shipment in late April cost
substantially less than its rushed March delivery at
Although rich in oil and gas, the slow pace of energy market
reform in Latin America has seen indigenous production tumble
while at the same time gas demand for power generation grows,
creating an energy gap filled by foreign imports.
The fields discovered off Brazil's coast, set to drive its
economy for years to come, are still deep in development and
will likely generate more oil initially than gas. Pemex has been
slow to make any moves to exploit shale gas reserves estimated
to be the world's third biggest.
The resulting appetite for LNG supply has attracted the
attention of producers and traders turned off by slumping demand
in Asia, previously the world's biggest LNG buyer.
"Supply for the two countries is widely expected to
originate from the Atlantic Basin, meaning offers into Mexico
could emerge higher because of longer shipping distances,"
Waterborne's Johnson said.
Brazilian demand for LNG took the market by surprise after
the worst drought in decades depleted hydroelectric reserves,
prompting heavier gas imports.
Although rainfall has topped up reservoirs in recent months,
LNG imports surged by 24 percent year on year to 19.84 billion
cubic feet in April, a trend that is expected to continue into
May at least, Waterborne data shows.
(Additional reporting by Henning Gloystein; editing by Patrick