Amigo LNG Exclusive Q&A: Plans to Export US Gas from Mexico

Singapore-based LNG Alliance continues to move forward with its plans for its one- or two-train Amigo LNG liquefaction plant in Mexico to be located in the Sonoran port city of Guaymas on the shores of the Pacific Ocean.

LNG Alliance, a fully integrated turnkey project developer of LNG terminals, already received a permit in December 2020 from the U.S. Department of Energy to export U.S.-produced gas to Free Trade Agreement (FTA) and non-FTA countries for a 7.8 mtpa LNG export facility. 

Hart Energy Senior Reporter Pietro Donatello Pitts spoke with LNG Alliance CEO Muthu Chezhian about his company’s plans in Guaymas to import piped gas from the U.S. and the potential timeline for initial LNG shipments to South Asia as soon as January 2026.

Pietro D. Pitts: Can give us a quick overview of the project and where you stand today in terms of its proposed development?

Muthu Chezhian: We already have the U.S. Department of Energy's permit to export U.S.-produced gas to Free Trade Agreement (FTA) and non-FTA countries for a 7.8 mtpa LNG export facility, which we received in December 2020. We also have a cooperation agreement in place with the state government of Sonora, which is a key differentiator for our project. In April 2022, we had a launch ceremony at the project site at Guaymas with the participation of the Governor of Sonora, representative from Mexico’s Secretariat of Navy (SEMAR), and the Mayor of Guaymas. This is a cooperation between the state government and Amigo LNG project and the state is providing us the land on a long-term lease. We are also working with the government of Sonora on a concrete way to accelerate and contribute to some of the sustainability and ESG goals of the state. Part of the project margins will go towards the betterment of the communities and cooperatives in Sonora and the State of Sonora is actively supporting the project. 

“We think the first wave of LNG projects in Mexico will move forward smoothly, especially the three projects in development in Sonora and Baja California.”—Muthu Chezhian, LNG Alliance

PP: How many trains could you realistically build and how much have offtakers committed to purchase?

MC: Our current execution plan is to have 3.6 mtpa as the first train and 3.6 mtpa as the second train and that will account for 7.2 mtpa. Another 0.6 mtpa is for the gas that could be used for power generation or for other operational purposes, which takes the plant up to 7.8 mtpa. 

To date, offtakers in South Asia have already fully committed to buy 1.8 mtpa. We are also in ongoing and very advanced discussions with potential offtakers in India, Indonesia and China. Although we haven’t finalized the remaining capacity because the current market is very price sensitive, we plan to make an announcement regarding the remaining offtake in December 2022.

We have another 0.6 mtpa which we have reserved for Mexico’s domestic market to address the virtual pipeline demand within the state of Sonora and mainly for LNG ISO truck loading towards the mining sector and industry clusters that don’t have pipeline access. For the feed gas supply for liquefaction, we have a gas pipeline that has enough excess capacity and that runs right next to the Port of Guaymas, which is approximately three kilometers from our project site. Our site is located inside an industrial estate, which makes it easier for us in terms of the social impact assessment and environmental impact clearance, all of which are progressing very well and within schedule. 

We still have 1.2 mtpa to market related to train 1 and have more than enough market interest. Currently, we are playing around with the idea of increasing the capacity of train 1 because of the way the market has reacted in the last four months. Importantly, we are in negotiations with a Southeast Asian client asking for more LNG volumes, in fact, more than the current train 1 capacity. If they commit to another extra 1.2 mtpa, then we have to ramp up train 1 to 4.8 mtpa to be aligned within the current pipeline's capacity.

We are fairly certain of getting the first LNG shipment from train 1 by January 2026. From an execution perspective, it really doesn’t add more burden on us but beyond that, we’d like to take a measured approach especially for anything beyond 7.2 mtpa as we will need new pipelines.

PP: When do you realistically plan to start construction of the site?

CM: We have all the prerequisites after signing an agreement with the State of Sonora this April that provides us with an accelerated permitting process. So, the State is helping us with this and they are a catalyst in this process. The federal government, SEMAR and the Secretariat of Energy (SENER) are all supporting our permitting process. As long as we can provide the information the regulators are asking for, they have been very supportive of the process. We anticipate all the permits to be in hand by February 2023, when we will start the construction. 

PP: Once you have the permits in hand is that when we can expect the FID announcement?

CM: Yes, that’s correct. Again, the offtake is very strong and the investment commitment is firm. The institutional investors backing the project are from the U.S. So, we are not worried about the cash part of it. Additionally, the EPC (engineering, procurement and construction) contractors have been shortlisted both in Singapore and China for the LNG liquefaction modules and in the U.S. for the marine facilities.

PP: When can we expect the first LNG cargoes to leave the port of Guaymas?

CM: By December 2025 we expect commissioning can be completed and by January 2026 the first cargo could be shipped out. This is the current schedule because we have standardized the engineering of the modules. We are running processes in parallel and staying ahead of the curve for the long lead items, we have already got those things sorted out. 

PP: What’s the expected investment commitment for the project considering one or two trains?

CM: Right now with just train 1 at 3.6 mtpa we are anticipating an investment of about $2.1 billion. This gives us almost $600 per ton per annum, which is a very attractive price for the LNG buyers, and almost 15% lower than the closest competition. If we were to go with a 7.2 mtpa two-train plant, the required investment would increase to around $4 billion.

PP: Are there advantages associated with your project’s location in the northwest region of Mexico and close to supply in the U.S.?

CM: There are two pricing advantages we have. The tolling fee is $0.50/MMBtu cheaper than any other liquefaction facility in the region or the U.S. East Coast because of our optimized design and standardized modular engineering. The project site has water depths of 17 meters so there’s no dredging and the Port of Guaymas is 3 kilometers from us. So the capex for us to set up a LNG facility at Guaymas is substantially lower. It’s also 1.5 kilometers from the navigation channel to the Port of Guaymas. So, we will have all the services of Guaymas at our back door and that reduces a significant part of the opex. So combined we’re able to get a very attractive tolling fee. We also have an additional price advantage, as we don’t incur Panama Canal charges and benefit from a shorter shipping distance to Asia, as compared to U.S. East Coast LNG. 

PP: Are you worried if any about pipeline constraints or a lack of source piped-gas to come from the U.S.?

CM: There are some concerns in the market but U.S. gas availability is there and pipeline capacity is there right now. We think the first wave of LNG projects in Mexico will move forward smoothly, especially the three projects in development in Sonora and Baja California.

We see the first train as a real viable one for us. When we move to the second train we could have a pipeline constraint which we need to address over the next few years. If we secure the maximum available surplus capacity of the existing pipeline, that gives us better control over the future since it would take another three to five years to lay the next big gas pipeline. 

PP: What type of economic impact will your project have in Guaymas?

CM: The government is trying to strengthen and modernize the Port of Guaymas, which handles about 9 mtpa of cargo. Our project will be an add on within that portfolio of export projects and Train 1 will increase the port’s extended handling capacity by over 35%

Additionally, there are multiple things in terms of job creation. The project will generate 3,000 jobs during the construction phase and then 280 full time jobs in Guaymas and another 400 indirect jobs in Sonora. 

But most importantly, I would say, from the government's perspective, is energy security. So we’re going to build two storage tanks, each with a capacity of 200,000 cubic meters of LNG which can be regasified if necessary in the case of a freeze like recently in Texas and provide around ten days of energy security to the state of Sonora.