Mexico Pacific’s 30 million tonnes per annum (mtpa) Saguaro Energía LNG project will offer Permian producers a relief valve for their gas and connect the U.S.’ cheapest gas to Asia—that is, once the project makes it across its must important financial hurdle.

The project is still awaiting an estimated $15 billion final investment decision (FID) to develop its first phase. And among other headwinds, developers of Mexican liquefaction projects have to deal with security risks, a slow regulatory process and overlay of U.S. regulation for gas exports.

But there appears to be light at the end of the tunnel for Mexico Pacific.

Saguaro Energía LNG will connect Permian gas with high-demand markets in Asia through liquefaction on Mexico’s West Coast. Committed offtakers include ConocoPhillips, Exxon Mobil Corp. and Shell, among others from Asia.

Mexico Pacific CEO Sarah Bairstow shared her thoughts with Hart Energy’s International Managing Editor Pietro D. Pitts at Gastech Houston 2024 on Sept. 20 on the project’s permits and pipelines, the Biden pause, an FID to come in early-2025 and whether Saguaro LNG would export U.S. LNG, Mexican LNG or Tex-Mex LNG.

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Pietro Donatello Pitts, international managing editor, Hart Energy: Let’s start the talk tackling the permits and any that are about to expire and the next steps in that space.

Sarah Bairstow, CEO, Mexico Pacific: Let me take a step back to get to the permits because we started with obviously permits and offtake here. This is a big project by Gulf Coast standards, but around the world and particularly Asia Pacific, [it’s] a pretty common size project. One of the things that attracted me to the project six years ago was the fact that I was working on one of the only FOB [free-on-board] projects in all of Asia and saw the pricing differential that North American projects could offer with that lower cost of gas, lower cost of execution, et cetera, comparatively. The idea that you could have something on the Pacific Coast there was incredibly unique. It's always had a bit of a diversified and innovative flavor to it. But the big focus, of course, was it's a new supply point, it's a greenfield project, so you need to get the confidence of the market and the confidence of the government.

SB Headshot
Sarah Bairstow, CEO, Mexico Pacific (Source: Mexico Pacific)

And once you have all of that, then everything else could obviously flow off the backend. So, we have all of the offtake committed. But that really was a strong point in validating the fundamentals of the project itself, right? It's two of the largest Permian Basin gas producers, three of the largest LNG players in the world. So, it was a nice way to marry up this thesis of taking that low-cost Permian gas and simply piping it. It's a similar distance to the Permian [as] is Brownsville, which I think is not commonly known. So really pipe it the other direction [and] give the Permian another evacuation route and an ability to monetize that really low-cost gas that is a headache for so many there in the Permian when they're trying to evacuate it. But, allow them to monetize it into premium Asian energy markets.

So that was a very big focus for a long time, but getting the validation from those big players was very key. We could then naturally take that into governments, both on the U.S. [and] the Mexican side, and demonstrate that this theoretical sort of concept of a project was highly viable and had been highly diligent and naturally was able to be proven out. So that was an important first step.

On the back of that, we, on the U.S. side, we’re having an interstate pipeline running from Waha to the border. It's not a FERC [Federal Energy Regulatory Commission] regulated pipeline, which makes our permitting journey a little bit different on the U.S. side. The two key permits for a project like ours on the U.S. side are the non-Free Trade Agreement (non-FTA) from the DOE [U.S. Department of Energy] and the presidential permit for the cross-border infrastructure, which comparatively is very small, just that cross-border footprint. So, we have both of those for all of the offtake on the anchor project.

But we've really experienced a lot of demand here, and again it all ties back to the Permian. The Permian itself needs about another 100 million tons of LNG offtake to evacuate the gas to accommodate growth and access to the liquids that everyone's really there for. This is a bigger project and we've got phasing and a lot of demand across all of that. We've been able to show them that we've got the anchor project fully committed, and a great evacuation route to monetize into Asia. We've equally already optioned out over half of Train 4, Train 5 and Train 6, and we have over 18 million tons of incremental offtake negotiations beyond that. So, the demand for this product is so big and most of that is because it's tied into the Permian.

So, while we've got all of the permits we need for the base anchor project for financing, we're really starting to look now at growth and how we will manage that, both in terms of our execution approach and equally incremental permitting, et cetera. It's a great place for the project to be in right now, but we'll immediately move into growth and starting to execute off the back of that, which will mean cycling through the permitting process again, et cetera.

PDP: The planned pipelines from the Permian to your plant in Puerto Libertad will have a capacity of 2.8 Bcf/d. The anchor project—Train 1, Train 2 and Train 3—will have a total capacity of around 2 Bcf/d. What’s the plan on the pipeline side to get transport capacity up to 4 Bcf/d to cover another 2 Bcf/d of LNG capacity associated with Train 4, Train 5 and Train 6?

SB: As is often the case in LNG, the first thing to look at is your baseline infrastructure and what you can leverage for growth. For us, we can leverage our base infrastructure with some compression … to cover Train 4. We see an ability to take a Train 4 FID within 12 months of the anchor project and then we'll look at growth beyond that. We have about 1,500 acres of land, there is so much growth potential here, even beyond Train 5 and Train 6. We really see an ability to create an LNG and broader industrial export hub in Sonora [, Mexico]. We had Sonora Governor Alfonso Durazo so kindly here with us this week here at Gastech, and he has this fantastic platform [called] Plan Sonora [about] bringing in investment. And Plan Sonora has been endorsed by both the U.S. and Canada equally. So, it's kind of like this tripartite effort where everybody sees the ability to grow out and create a hub off the West Coast of Sonora.

Train 4 is a pretty simple expansion effort. [Regarding] Train 5 and Train 6 and what we choose to do beyond that, we're in the process now of looking at existing right of way paths, et cetera, to identify [whether] we want to replicate what we have and leverage that, or do we want to go in a different direction, and we'll take that decision pretty near-term.

PDP: You're going to take U.S. gas and ship it to Mexico along a U.S. and then Mexican pipeline, liquefy it in Mexico and then ship it to Asia or wherever. So, is it U.S. LNG, Mexican LNG or crazy enough, Tex-Mex LNG? What are you selling this as?

SB: I think the primary selling point is that it's de-risked and more cost-effective LNG without a doubt. But it's not up to us to determine what this LNG is classified as; it's actually determined by every importing country. They have their own importing regulations that determine whether the product is U.S. or Mexican or otherwise. And frankly it differs. It's interesting across each of those Asian countries. Some of them deem it as Mexican LNG and others deem it as U.S. LNG, but we don't really have too much influence in that we've really got to work with our customers and how they view that in terms of their own existing regulation.

PDP: After Russia’s invasion of Ukraine, many European and Asian buyers of LNG were forced to diversify their supply sources away from Russia—much to the delight of the U.S. Do you now see them trying to diversify somewhat from an over reliance of U.S. LNG via Canada and your project, if we just confined their search to North America?

SB: We've definitely seen that, but it was less linked to the Russian invasion of Ukraine and all the geopolitical issues in Europe. It was more about congestion in the Panama Canal. So, years before that, you saw vessels that were awaiting 18 days to get through. Some of them have no guarantee, they just sit and hope. Then of course you've seen equal risk in transits with the Suez Canal. Diversification in Asia— in particular as a region that has such great need for international imports for energy security— [is] nothing new, that's always been the case. They've got depleting reserves, and a high reliance on particularly allied nations to support with energy imports. For them, it's always been about diversification, which is why you've seen Asian buyers take offtake from the Middle East, Australia, Indonesia, Malaysia, the U.S., et cetera. For us it was an absolute diversification play that was coupled with … the cheapest landed LNG into Asia, which helps. But avoiding the Panama Canal was the real key driver there. But that congestion has been an issue for five [years], six years. Now it's just compounding.

PDP: Everyone seemingly has a comment on the Biden pause. Those views vary depending on whether it’s an U.S. or international company and then whether a U.S. project is under construction. In the case of Mexico Pacific, what is your take on the Biden pause and its impacts on your building momentum around the project?

SB: Macro wise, it's obviously an unfortunate thing to happen here in the U.S. from an investment certainty perspective. We, like many others in the industry, know it will be resolved, it's just a matter of time. But the bigger challenge is how long will it delay all of those other projects. Development capital is very expensive, and one of the brilliant things about U.S. LNG is that it's been very entrepreneurial in nature. It's not large super major plays backed by balance sheets, which allows those companies to be more innovative and create products that are more akin to what the market really wants, and to be flexible.

The downside of that is these companies don't have the balance sheets to simply withstand prolonged suspension of development activities and progress. I think we will see a huge impact there on some of the projects that have been affected in the U.S.

For us in capital markets, it has been a bit of a tailwind and that there are no other U.S. LNG projects moving through financing right now. As we talk with lenders, with equity providers, et cetera, all of them are looking to further invest in North American energy. I think it's seen as a very safe, very reliable and a very important investment over the coming decades, particularly around the energy transition and energy security. But there aren't a lot of places for people to put that capital these days. So again, we think it'll be resolved, but there'll certainly be some prolonged impacts as a result.

PDP: There’s been talk of an ‘imminent’ FID coming from Mexico Pacific executives for almost a year now, so my question is, how does your company get the anchor project across the finish line? You’ve had elections in Mexico. You’ve got U.S. elections coming. You need to build a massive pipeline across northern Mexico, and some analysts are worried about that. And we just saw New Fortress Energy start exports from its fast LNG project in Altamira. So just talk me through all the variables and when we could get that FID announcement?

SB: Let me tackle the pipeline first, because that's a common misconception here in the U.S. Gulf Coast simply because projects historically have been able to access existing pipelines here in the U.S. But that capacity is largely locked up now. We'll see the U.S. Gulf Coast really move into more of an environment where they have to build pipelines. The U.S. has really only been in the LNG space for around 10 years, but LNG has been around for 60-plus years more broadly across the world. When you look at LNG on a global basis, projects always have pipelines.

So, this is not different in terms of risk profile when you look at other LNG projects and historically how things have been developed. It's just simply different to the U.S. Gulf Coast. But that difference is what allows us to have really low-cost landed LNG and to de-risk, ironically, the whole transit journey itself. It’s been very well supported. It's naturally been a big focal point as it is with any project with a pipeline. We now have the right of way and equally the pipeline EPCs [engineering, procurement and construction] completed to a point that we can finance the project. We, as a company, naturally try to stay a little more discreet and maybe humble in our activities.

You may not hear as much publicly about what we're doing, but we feel very confident about that pipeline. 

On the broader project itself, as we've worked through this year, the project has been nicely lined up across commercial offtake, permits, contractors, et cetera, but we have found opportunities where we felt we could further de-risk the project. And we would much prefer to pivot and take the time if we think it will reduce our execution risk than to simply rush through to an FID. So earlier this year we were planning for a very earlier FID, but we were presented with an opportunity to modularize the project. Our team has done around 15 trains with Bechtel to date and ConocoPhillips. Many of us have worked on the Gladstone LNG project [in Australia] that were modularized with great success. That hasn't been done so much here on the Gulf Coast in the traditional modularized scale simply because of the Panama Canal risk in getting those modules to site. We don't have that issue. Someone had called it ‘hurry up and wait’ in a sense of everything is being progressed in parallel for an FID, but equally assessing this modularization opportunity.

We spent most of the first half of 2024 working through that from a feed assessment and have recently taken the decision that we will be modularizing the project. The execution itself is not so different to other projects, but it's something we want to have laser focus on because we want to get it right for us. We have so much growth ahead and so much demand for this project. We want to prove that we can execute this project as smoothly as possible, obviously on time and on budget so that catapults that growth trajectory for us. And modularization was a big part of that. When you look at the project now, there's no offshore element. All of it is onshore. We'll naturally have a significant amount of labor on site, but we will complement that with a number of the components being modularized offshore in Asia and brought to site just to further de-risk the project. It took longer, but it's been the right decision for the project and I think our stakeholders are all happy with the decision.

PDP: The original plan was for Mexico Pacific to take an FID on Train 1 and Train 2 at the same time and then follow that quickly with an FID on Train 3. What’s the plan now?

SB: I think that in taking this extra time around modularization, Train 3 is now also ready. So that's the permits, the offtake contracts, et cetera. We have been moving through capital markets, both debt and equity. That's the primary focus now, and rounding that out. We’ll continue to push that to close as expeditiously as possible. But I expect it will be early next year [early-2025]. We will seek to maintain that flexibility as to whether we do a two train with a subsequent third or whether we close as one phase. We'll really work with the market to figure out what's the best fit and the best outcome for the project there.

PDP: New Fortress Energy went with what one analyst called a Lego set up for its fast LNG project offshore Mexico. What should be expected from your modular decision?

SB: There are different scales of modularization. There are those projects we've seen here in the U.S. Gulf Coast that have very small trains, modularized 0.7 million tons for example. And then you have the fast LNG approach where you've seen Altamira, et cetera, that has a different form of modularization again—offshore platforms and offshore production. We're a little more traditional. We don't think that with our project we need to push the envelope to make our project work. It's not about that for us, this is just about execution risk. So, it doesn't necessarily change the schedule. We're not looking for fast LNG. What it allows us to do is take large components of the equipment and the infrastructure, have that constructed in dedicated yards that are rolling from one LNG project, doing a very similar thing straight onto ours. It's a rinse and repeat contained environment for the construction and then have those modules shipped to site and then obviously integrated into the broader project as that's being built out. It's a different philosophy in that it's not small-scale modularization and [an] effort to try to bring down costs. That's not what our project is about. It's not about fast tracking and just trying to get to [the] market as quickly as possible. It's more about how you execute in a contained environment and really de-risk the construction itself for us.

PDP: It seems that everybody—especially Asian markets—watching the Mexico energy space has an eye on Mexico Pacific and other projects on Mexico’s Pacific Coast. That speaks to a bit of evolution that North America has gone through since around 2016 in the LNG space, right?

SB: Before this project became a concept, I was working in Australia and Australia was the biggest LNG exporter as I was marketing the Gladstone LNG project, which was innovative in itself because it was the first-time taking coalbed methane gas and unconventional gas and moving it to LNG markets. We saw Cheniere Energy come to market in Asia and highly disrupt our efforts, which was frustrating at the time as a traditional producer, but they had the right idea in that the market needs to evolve.

There was huge success that then built out this new wave of LNG out of the U.S. Gulf Coast that we've seen. But the market needs to continue to evolve and that's what people see here with our project. This is a big project. We have a lot of growth, but there is so much more potential for Mexican West Coast exports beyond our project.

I truly believe, and I think we've proven out now to the market that we are the next wave of evolution in the LNG market. This is essentially taking that U.S. Gulf Coast model where you've got lower cost LNG, you're more flexible because you can tap into a very liquid gas market. For the Permian, physical liquidity in Waha surpassed Henry Hub in 2018. Waha closed in August one day at around negative $7. It's crazy. I think that people are starting to recognize that the next big wave of lower cost LNG, that has higher reliability that the market really needs now will be the West Coast of Mexico. And so while we're very proud that people are understanding and supporting our project, it represents so much more than just our project. It represents a whole new supply point.

PDP: This week during Gastech you mentioned there was potential for up to 70 million tonnes to come from Mexico. That’s a bit higher than the 60 million tonnes that was floating around prior thereto. What’s changed?

SB: I think that's probably over the next 15 years or so. We have a lot of land. We've got 1,500 acres. There's a lot more we can do beyond our current growth focus. But equally as we prove out, we take FID, we get into construction and particularly as people see with the support of the government, not just in development but through execution, I think we'll see a number of other projects start to be proposed equally. So, whether that 70 million tons is incremental growth from us as well beyond our initial growth plans or other projects, we'll see, but there's a lot of room for a lot of projects here.

PDP: What is the emissions advantage of Saguaro LNG that Mexico Pacific executives always talk about?

SB: On the emissions front this is equally another education journey across the market for the Permian. We offer our customers an ability to contract on Henry Hub or Waha. There's been a huge education effort around the benefits of the Permian. They understand the cost basis, they understand the key cost benefit that brings them, but equally on emissions. I mean the Permian is about 99% less CO2 than Haynesville and Eagle Ford. That gives you a big starting advantage in terms of CO2 content. You've then got a pipeline. Newer pipelines have newer technologies. So, methane leakage, et cetera is far lower. Then equally on the LNG production side. It's a very proven out technology here and equally contained. And then of course you halve the emissions shipped to market.

When you aggregate that value chain, you start to see that it's not just about low-cost LNG, it's done in a way that has a much lower emissions profile, that then is supplemented. This is where the U.S. is going. It's no longer just about emissions, it's about how you manage impact on the environment and across social stakeholders. For us being able to then compliment all of that with this route and the facility and the shipping route as well, that avoids all of those key areas and has that social and environmental justice outcome. It's ticking all of the boxes. We hope that there's a higher bar to be set for the industry. You can have large scale energy infrastructure projects, but you don't need to cut corners. We can show that you can have profitable projects that attract investors that equally provide incredibly cost competitive LNG, but doing it the right way. So, we'll start to see that move through the market equally, particularly on the back of the LNG pause and some of the focus now in the U.S.

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