Pemex and U.S. New Fortress Energy scrap deepwater natural gas project deal

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Mexican state energy company Pemex and U.S. liquefied natural gas (LNG) company New Fortress Energy have terminated a deal to develop potentially the country’s first deepwater natural gas project that was signed a year ago, two sources with direct knowledge of the matter said.

Now Pemex wants to continue with the development of the Lakach gas field in the Gulf of Mexico and is in talks with other companies, the two sources said, without naming the companies.

Still, one of the sources noted the project that was abandoned once before in 2016 for being too expensive has already cost over a billion dollars.

The Lakach field, some 90 kilometers (56 miles) from the Gulf port of Veracruz, holds an estimated 900 billion cubic feet of natural gas, but rising costs and disagreements over how to develop it have impeded the venture.

Last month, Pemex decided to halt the project after NFE wanted to impose conditions Mexican officials considered unacceptable, including NFE buying the natural gas too cheaply from Pemex, one of the sources said.

The other source said Lakach had become too expensive for NFE, and observed that it would be challenging for Pemex to move ahead with the project.

Neither Pemex nor NFE responded to requests for comment.

Despite doubts from the national hydrocarbons regulator (CNH) over whether Pemex could handle the massive project, Mexico’s President Andres Manuel Lopez Obrador said it could be key for supplying much-needed natural gas to the country.

Pemex had planned to sell 190 million cubic feet per day (mcfd) of gas to NFE and supply another 110 mcfd to the domestic market. Production was supposed to start in the first quarter of 2024.

Prior to the current administration, Pemex had already invested $1.4 billion in developing Lakach but abandoned it. NFE then agreed to complement that initial investment with an additional $1.5 billion.

Pemex wanted to develop Lakach with the U.S. company using a service contract, a mechanism used prior to Mexico’s energy sector opening in 2013-14.

Reuters previously reported that officials at the CNH and Pemex had been at odds over how to develop Lakach and other large fields.

In an initial review, officials at the regulator found drilling costs in the Pemex-drafted plan were too high and output was overestimated. It eventually got the green light from the regulator after Pemex modified the plan.

Last week NFE told the U.S. Department of Energy it had begun evaluating a fresh LNG onshore project in the Gulf state of Tamaulipas and is about to begin operating a floating LNG export terminal off the Tamaulipas port of Altamira.

Source: OEM