Houston, 24 April (Argus) — Mexican industry officials are pushing for the government to make faster progress on natural gas infrastructure so that domestic industrial and fertilizer production can grow and mothballed facilities can restart.
Despite pressure from the private sector to build out natural gas pipelines, there is no marked progress, a Mexican industry executive said.
Pemex owns seven ammonia plants, but has only been operating two regularly. The firm's annual ammonia production increased slightly year-on-year to 939,000t during 2012.
Mexico is import dependent on anhydrous ammonia, having brought in 180,200t of nitrogen in the form of ammonia in January-December 2012, a 35pc increase from the prior year, according to the International Fertilizer Association (IFA). Most of Mexico's ammonia imports come from Trinidad and Tobago, though Indonesia, the US and Venezuela are also smaller suppliers. Prices are typically tied to the Tampa cfr monthly ammonia contract price, which has seen high volatility. Prices have ranged from just above $400/t cfr Tampa in 2012 to a high above $700/t cfr in the second and third quarters of this year.
Ammonia is used in Univex's caprolactam production and in Grupo Fertinal's phosphate fertilizer production in Mexico. Five nitrogen fertilizer plants owned by Agro Nitrogenados have been idled for over a decade because of high feedstock costs relating to natural gas and ammonia. Average end user prices for ammonia soared from Pa582.32/t ($47.56/t) in 1994 to Pa3,368/t in 2004, according to Pemex data, prompting many private companies to shut down operations. Whether new ammonia supply comes from revamped older plants or new projects, manufacturers who have to purchase the feedstock want cheaper, easier access.
The industry is on the cusp of change because the US shale gas boom prompted a knock-on effect for export prices to Mexico. Spot natural gas traded at the US benchmark Henry Hub in Louisiana has averaged nearly $3.60/mnBtu so far this year, up by about 50pc from the prior-year period as producers have scaled back drilling in dry-gas fields to focus on formations with higher liquids content, according to Argus data. But even with those gains, gas prices are well below pre-recession levels and are at a substantial discount to the cost of imports of liquefied natural gas (LNG) into Mexico.
In 2012, US natural gas pipeline exports to Mexico averaged 1.7bn ft³/d (47.6mn m³/d), up 24pc from the prior year, according to EIA data. But political tensions are hindering the further development of natural gas infrastructure in Mexico. Financing of major projects has sparked disputes over whether the government or the private sector should shoulder the burden, sources said.
Earlier this month, Mexico's state-run oil firm Pemex announced a deal with Japan's Mitsui to build a natural gas import pipeline from Tucson, Arizona, to Sasabe, Mexico, that can transport 770mn ft³/d. Already, North American midstream group TransCanada is slated to build a $1bn pipeline across northern Mexico to Topolobampo on the west coast to help fuel new gas-fired power generation. US firm Sempra Energy also won two separate contracts to build pipelines stretching across Mexico including one from Sasabe, Arizona, to Guaymas and another from Guaymas to El Oro. There is also a plan to expand gas pipelines from Agua Dulce, Texas, to the US-Mexico border and then further into eight Mexican states.
South Texas' Eagle Ford shale field has seen a boom in production in recent years as producers have sought to recover hydrocarbons from the crude and liquids-rich field. Gas production from the Eagle Ford averaged 2.3 bn ft³/d in February, up by 43pc from the prior-year period, according to EIA data. That volume is equivalent to about 3pc of the agency's forecasted US daily marketed gas production for 2013.
Once there is more natural gas supplied directly to the country, Pemex might then bring its other idled ammonia plants into service, though revamping these older units could be very costly. Other investors are looking at constructing new plants. Private sector officials favor greenfield projects as more economical and feasible than the older units, which adds years to the tentative timeline for these changes.
“I think it will take at least five years to get the infrastructure of gas transportation to actually be there, and so after that it would make more sense to build an ammonia plant, but it could take another three to five years,” an industry executive said.
The major new gas pipelines that Sempra and TransCanada are planning to build in the country would start service in late 2014 and late 2016, respectively.
For now, the private sector says it must wait for Mexican President Enrique Pena Nieto's new administration to make decisions before any changes will have an impact. Nieto's new government is preparing landmark oil industry reform proposals and partnerships between Pemex and the private sector, which could be unveiled later this year.
“The last administration told the private sector to wait for the new administration to come, and now they're here but just settling in, so we hope something materializes on it soon,” the industry official said.
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