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Peru LNG supply contract remains intact: CFE

27 Apr 2017 17:21 (+01:00 GMT)
Peru LNG supply contract remains intact: CFE

Mexico City, 27 April (Argus) — Peru LNG's long-term LNG supply contract with Mexican state-run utility CFE has not been renegotiated, despite pressure from the Peruvian government to do so, Eugenio Herrera, general counsel for CFE Internacional and CFEnergia tells Argus.

"The contract is still in full force and effect and has not been renegotiated," said Herrera.

But a senior Peruvian official tells Argus that while the contract remains intact, Shell is quietly paying a penalty for sending cargoes to other more lucrative markets after meeting a certain level of supply to Mexico. Shell has declined to comment.

Mexico has received just two Peruvian LNG cargos in the past seven months, one in October last year and one this week.

Peru's government said last year that talks were underway to revamp the Henry Hub-based contract but Mexican officials have long declined to comment.

The contract was signed in 2007, but came into force in 2011 because of delays in the completion of Mexico´s Manzanillo LNG terminal. The terms allot 67bn m3 of LNG to the CFE for 15 years, or through 2026.

The deal was signed when the US Henry Hub natural gas benchmark was hovering around $8/mn Btu compared with a current $3/mn Btu.

Peruvian authorities have attempted to renegotiate the contract terms claiming they were no longer advantageous to either party.

Under the existing contract, Peru LNG, operated by US firm Hunt Oil, supplies LNG from its 4.4m t/yr plant to the CFE at Manzanillo. Shell is part of the Peru LNG consortium and is the sole marketer.

LNG is losing relevance in the Mexican market as the country imports growing volumes of less costly pipeline gas from the US.

Mexican LNG imports averaged around 504mn ft3/d in January, up from 387mn ft3/d in the same month a year ago, partly because of an apparent design fault with the Ramones Sur pipeline that has seen it operating well below its nameplate capacity of 1.4bn ft3/d. Once all new pipelines are operational by 2018, LNG imports are expected to be limited to spot purchases for system balancing.

Mexico has three regasification terminals: 0.7bn ft3/d Altamira on the Gulf coast, and 1bn ft3/d Costa Azul and 0.5bn ft3/d Manzanillo on the Pacific coast.

Although Manzanillo operations remain reasonably brisk, Altamira has not received any cargoes since last August and Costa Azul is idle.

Sempra's Mexico unit IEnova is planning to convert its Costa Azul terminal into an export-oriented liquefaction terminal and is currently securing the necessary permits to do so, the company said in a fourth quarter results call.

The Manzanillo terminal could also be converted into a liquefaction terminal at some point in the future, the CFE's Herrera said.