LNG FOR MEXICO AT MANZANILLO: A LITMUS TEST

The decision on the Manzanillo liquefied natural gas (LNG) project is more than a contract assignment. At stake is Mexican energy policy, particularly the strategy to supplement energy needs in the medium and long term. LNG has developed rapidly in Mexico; the Altamira project signed in 2003 is expected to deliver LNG on October 2006, and the Energia Costa Azul LNG receiving terminal in Ensenada, Baja California, is under development, suggesting that Mexico is ready to sign its third LNG contract. However, recent delays in the Manzanillo tender raise questions, including whether LNG will be developed on a case-by-case basis:

- A tighter time frame. The ability to assign the Manzanillo LNG tender is an important signpost for LNG's future role. The July presidential elections make the bidding process ever harder to complete during this administration; a new administration may have a different focus regarding Mexico's fuel choices or different priorities.
- Discussion on fuel diversification has gained momentum. The natural gas price environment is forcing Mexico to start analyzing other fuel supply possibilities. In fact, the political platforms of the main parties highlight the need to expand fuel alternatives. The emphasis varies from the need to review the strategy that could incorporate more coal to the specific proposal to move away from gas for power generation and favor heavier fuels.
- A contingency plan. If the Manzanillo LNG project does not move forward, a contingency plan could be based on alternative technologies and fuels, such as the new 700 megawatt coal plant being developed in the neighbor state of Guerrero, continued power imports from the Central and Northeast regions, and leaving the current 1,900 MW Manzanillo facility as a residual fuel plant.

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