Peru revives effort to curb LNG exports to Mexico
OREANDA-NEWS. September 26, 2016. Peru's government is reviving an effort to sever LNG exports to Mexico in favor of more lucrative markets in Asia and Europe.
Energy Minister Gonzalo Tamayo told reporters yesterday that "it is no longer advantageous for us to continue exporting to Mexico. We need to look for other alternatives that would benefit the Peruvian state."
The objective would require Peru LNG, a privately operated consortium, to renegotiate its sales agreement with Mexican state-run utility CFE. Under the existing 2007 contract, Peru LNG supplies around 65pc of the production from its 4.4m t/yr liquefaction plant in Pampa Melchorita to Mexico's Manzanillo terminal.
Shell, a partner in Peru LNG, is in charge of marketing the LNG. Tamayo said the Peruvian government had spoken to "everyone in the value chain" regarding the renegotiation. A Shell spokesperson in Peru said the company could not discuss the proposed renegotiation.
Tamayo said President Pedro Pablo Kuczynski plans to speak with his Mexican counterpart, Enrique Pena Nieto, when the two meet in Cartagena, Colombia for the signing of a Colombian peace agreement on 26 September.
"It is not going to be easy and it will take time. We have been in contact with Mexican authorities and the companies are also talking," said Tamayo.
The minister said the renegotiation is part of the "structural changes" underway between Mexico and the US, with the construction of cross-border natural gas pipelines that are reducing Mexico's need for LNG. He said markets in Asia and Europe would bring Peru a much better return through royalties than continuing shipments to Mexico.
Peru LNG has sent out 354 shipments since it was launched in June 2010. Of the last 15 shipments, eight went to Mexico, four to Spain, two to China and one to France. The shipments to Mexico averaged \\$2.90/mn Btu, those to France and Spain averaged \\$3.8/mn Btu, while shipments to China averaged \\$5.70/mn Btu, according to oil and gas agency PeruPetro.
Peru's 130-member unicameral Congress is also pressing for contract talks. The left-wing Broad Front caucus submitted legislation on 4 August that, if passed, would require renegotiation of the 2007 contract.
"Peru needs to recuperate its gas sovereignty. After more than a decade it is time for Peruvians to benefit from our natural resource," said congressman Manuel Dammert, who presented the bill.
Anthony Laub, a partner in the Laub & Quijandria law firm that specializes in energy and mining, cautioned that renegotiating the contract would set a bad precedent. "Peru needs to respect contracts that are signed. You can't decide to change a contract whenever conditions change," he said at a recent energy seminar.