On June 4, Sempra Energy (SRE) announced that Phase 1 of ECA LNG (Energia Costa Azul) achieved first LNG production. The milestone puts Mexico on the cusp of becoming a Pacific Basin LNG exporter while establishing new demand for US-sourced natural gas.
Phase 1 consists of one 3.25 Mtpa (~430 MMcf/d) liquefaction train at the existing Costa Azul regas terminal in Ensenada on the Baja California Peninsula. SRE and its partner Total (TOT) continue to move the project through the commissioning process ahead of commercial operations.
ECA’s gas use will be relatively modest compared to most other LNG export projects. However, it will create new baseload demand in the Southwest, where the regional balance can tighten as a result of weather or infrastructure outages.
ECA will receive gas from the Permian and San Juan basins via the El Paso Natural Gas (EPNG) system. EPNG connects to TC Energy’s (TRP) North Baja Pipeline in Ehrenburg, AZ, which transports gas south into Mexico at the Yuma, CA border point. From Yuma, gas moves west through the Rosarito Pipeline in Mexico to ECA LNG on the Pacific coast.
Tracking ECA’s demand will be challenging. Visibility on pipeline bulletin boards ends at the Ogilby meter station near the border. Moreover, the Rosarito line serves power plants and other consumers in Mexico, making it hard to differentiate deliveries to the new export facility.
Nevertheless, the LNG facility’s recent pull on supply is clear. Gas deliveries at the Ogilby meter station have ramped to near 900 MMcf/d through June, about 300-400 MMcf/d above the seasonal norm at this time of year (see figure at right).
In the short run, ECA startup isn’t likely to move the needle on the regional market balance. As of June 12, Pacific region storage levels are 29.3% above the 5-year average following a mild winter in the West. The storage surplus should result in less demand by utilities for injections, creating some flexibility as the project ramps this summer.
However, the West Coast is only one cold winter away from tightening again. For example, a below-normal 2022-23 heating season, combined with an extended outage on EPNG, sent California gas prices surging past $40/MMBtu in December 2022. ECA will create more competition for supply in the Southwest, which will put upward pressure on SoCal Border prices.
See East Daley Analytics’ West Coast Supply & Demand report for more information on the regional market dynamics. – Alec Gravelle Tickers: SRE, TOT, TRP.
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