VZCZCXRO4136
RR RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #1271/01 0721652
ZNR UUUUU ZZH
R 131652Z MAR 07
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC 5796
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RUEHPE/AMEMBASSY LIMA 1452
RUEHOT/AMEMBASSY OTTAWA 2282
RUEHC/DEPT OF LABOR WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 MEXICO 001271 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/MEX, WHA/EPSC, EB/IFD/OMA 
STATE FOR EB/ESC MCMANUS AND IZZO 
USDOC FOR 4320/ITA/MAC/WH/ONAFTA/GWORD 
USDOC FOR ITS/TD/ENERGY DIVISION 
TREASURY FOR IA (ALICE FAIBISHENKO) 
DOE FOR INTL AFFAIRS KDEUTSCH, ALOCKWOOD, AND GWARD 
DOE FOR DAS PUMPHREY AND A/S HARBERT 
DOL FOR ILAB 
 
E.O. 12958: N/A 
TAGS: ENRG EPET ECON MX
SUBJECT: MEXICAN OFFICIALS DISCUSS LNG AND COAL MARKETS 
WITH DOE 
 
REF: 06 MEXICO 3638 
 
Sensitive but unclassified, entire text. 
 
------------------------- 
Introduction and Summary 
------------------------ 
 
¶1. (SBU) A Department of Energy (DOE) delegation and Mexican 
officials discussed supply challenges facing the North 
American (liquefied natural gas) LNG market. Lack of 
reasonably priced liquefied LNG will likely cause the GOM to 
place its Manzanillo regassification project (reftel) on 
hold.  With a supply contract, however, Sempra Energy's one 
billion cubic feet per day Costa Azul project should begin 
operations later this year or early next.  The group also 
discussed future prospects for North American coal.  End 
Introduction and Summary. 
 
--- 
LNG 
--- 
 
¶2. (SBU) Mexican Officials told Assistant Secretary Karen 
Harbert that LNG supply was becoming a significant problem. 
  Francisco Santoyo, Chief Financial Officer of Mexico's 
electricity monopoly, the Federal Electricity Commission 
(CFE), told the delegation in a separate meeting that the 
company's 10 year program calls for gas-fired generation to 
move from 40 per cent of the power generation portfolio to 60 
percent of total Mexican generation capacity, followed by 19% 
provided by hydroelectric power, 3.5% by nuclear power and 
less than 5% from coal.  CFE has as a result, become a player 
in global LNG markets. 
 
¶3. (SBU) This plan has provided CFE many areas of 
opportunity.  The company has taken specific steps in the gas 
market to diversify Mexico's source of supply.  CFE officials 
said that adding the LNG regassification facility at 
Altamira, which currently receives gas from Nigeria, has 
provided an alternative to pressure on the company from high 
U.S. gas prices.  The Ensenada, Baja California 
regassification terminal "Costa Azul"-operated by Sempra 
would follow, due to go on line in late 2007 or early 2008. 
CFE will take half of Costa Azul's deliveries with the 
remainder going to the U.S.  Mexico also has the option of 
increasing gas handling capacity at Altamira to 1 billion 
cubic feet per day (BCFD) to allow trading. 
 
¶4.  (SBU) CFE officials said it is in the process of awarding 
bids on a regassification plant at Manzanillo to supply gas 
fired generating capacity in Guadalajara, which it said would 
again help to relieve Mexico from high U.S. gas prices. 
Nonetheless, Santoyo admitted that supplying the plant with 
LNG will be a problem.  When built, Manzanillo will provide 
additional opportunities for gas trading.  CFE was currently 
looking for a reasonably priced LNG supply for the proposed 
Manzanillo facility.  Santoyo felt that the pressure on 
Mexican electricity production caused by short LNG supplies 
was "manageable."  Nevertheless, he added that the delay in 
marketing Sakhalin LNG, which CFE had counted on, had been 
"painful" for Mexico and that reliable supplies from Peru 
that could also be used to load Manzanillo were far off.  He 
was more optimistic about Malaysian and Australian supplies 
for the facility. He asked if the U.S. and Mexico could work 
together to bring down prices for LNG. 
 
¶5.  (SBU) The Energy Secretariat's (SENER) Rafael Alexandri, 
in a separate meeting more openly told the delegation that in 
current bids, suppliers were offering LNG to Mexico for the 
Manzanillo facility at a price premium above the Henry Hub 
(U.S. Gulf Coast) reference, which he suggested showed 
suppliers intended to try to maintain a high North American 
price. 
 
 
MEXICO 00001271  002 OF 002 
 
 
¶6.  (SBU) A/S Harbert noted that while the U.S. was committed 
to expanding its LNG import infrastructure, the U.S. was 
encountering challenges in securing new sources of LNG 
supply.  She pointed out the emerging global LNG market, 
noting LNG spot cargoes have crisscrossed the Atlantic 
recently in response to higher prices being offered in 
Europe. 
 
¶7.  (SBU) Santoyo said in the future, Mexico will able 
looking at importing gas into Chihuahua through a proposed 
LNG terminal at Puerto Libertad and delivering at least some 
of that gas by pipeline to the U.S.  CFE has received 
expressions of interest from El Paso Natural Gas in 
particular in importing gas to the U.S. market through Puerto 
Libertad. 
 
¶8.  (SBU) Santoyo suggested that continental gas security 
could be improved through additional LNG regassification 
construction.  He suggested that a joint North American 
approach to Peru and othQpotential South American suppliers 
on the importance of those supplies to the North American and 
global markets may be appropriate.  He also suggested a joint 
U.S.-Mexico discussion on LNG.  Deputy Assistant Secretary of 
Energy for International Cooperation, David Pumphrey noted an 
existing APEC effort to design best practices for the 
international LNG market. 
 
¶9.  (SBU) Like Santoyo, Mexican Undersecretary of Energy for 
Planning, Jordy Herrera believed that Mexico would operate 
3-4 LNG terminals in the next 10 years.  Only one of these 
would be owned by the government, the rest would be private. 
One of these terminals would be geared to deliver gas to the 
U.S.   However, Herrera was negative about the prospects for 
Manzanillo ever being built by CFE. 
 
---- 
Coal 
---- 
 
¶10. (SBU)  Santoyo noted that CFE was importing coal through 
Puerto Libertad to feed coal fired plants in Puerto Libertad 
and Coahuila, and added that capacity could be used for 
exports to the U.S.  Pumphrey noted that DOE was supporting 
research into "Carbon Sequestration" including the FutureGen 
project for a zero-emission coal fired power plant and that 
Mexico might be interested in this technology to limit their 
carbon emissions as well.  Herrera noted that Mexican coal 
consumption was minimal and was unlikely to increase. 
Santoyo noted that all CFE plant emissions fall within GOM 
limits, but there was increasing public pressure to tighten 
emissions rules. 
 
¶11. (SBU) DOE A/S Harbert has cleared this message. 
 
 
 
Visit Mexico City's Classified Web Site at 
http://www.state.sgov.gov/p/wha/mexicocity 
GARZA