How Mexico Pacific is advancing the US$14bn Saguaro Energía gas liquefaction plant

Mexico Pacific plans to start constructing the first phase of the Saguaro Energía gas liquefaction plant in Puerto Libertad, Sonora state, in 1Q24.

Planned in two phases, the project will make Mexico the world’s fourth-biggest liquefied gas exporter.

Built on the Pacific coast to supply the Asian market, the project also includes the 800km Sierra Madre natural gas pipeline between Texas and Sonora, via Chihuahua, for which permitting and contracting advanced throughout 2023.

BNamericas talks to Mexico Pacific’s local representative, Alberto Alonzo, about project planning, procurement and government support.

BNamericas: Mexico Pacific has described Saguaro Energía as the largest foreign direct investment in Mexico to date, but some analyses also categorize it as a nearshoring investment. What type of investment does the project represent?

Alonzo: What I can tell you categorically is that this project was in development long before the nearshoring boom started. And a project like this is not done in the short term, it’s not done quickly, it’s not done in a month or two.

It not only takes construction and development time, but also conceptualization, engineering, and site selection. Hundreds of thousands of manpower hours are required to plan a project of this caliber.

One thing this project consciously did in its early stages was perhaps to keep a low profile while everything was being organized, not yet conceptualized, and the project scope was defined. It was not until relatively recently that the idea of Saguaro Energía, where it is, its size and so on, began to grow a little more.

Now, if by nearshoring we understand the materiality of a multi-jurisdictional commercial relationship for the benefit of Mexico, then of course this is a project that exemplifies that very well and begins with foreign direct investment and ends with the generation of employment and a commitment to very important social, community and sustainability investment that is part of our plan.

BNamericas: The initial cost was estimated at US$14bn, but it remained unclear how much will be for the liquefaction plant in Puerto Libertad and for the 800km Sierra Madre gas pipeline between Texas and Sonora via Chihuahua. Could you clarify how the capex will be distributed?

Alonzo: The US$14bn estimate includes the development of this gas pipeline, a huge project.

The plant will have capacity of 15Mt/y at the beginning with three trains, with 5Mt/y each. A very important design aspect of Saguaro Energía is the modularity in its construction and each train consumes around 0.8Bf3/d [billion cubic feet per day] of gas supplied from Texas. Modularity is important because it facilitates the plant and future planning.

We have a second phase planned, in which we’ll add trains four, five and six to reach an additional 15Mt/y, which would make Mexico the fourth largest liquefied natural gas exporting country in the world, behind Qatar, Australia and the US.

Our project is really very simple economically. We charge our customers to transport the gas in a pipeline, and to liquefy it and put it on their ship.

BNamericas: What’s the construction schedule? When do you plan to start operations? Will you launch tenders and do you have information about any contracts?

Alonzo: Regarding tenders, Mexico Pacific has hired two very important engineering companies. In the US, it’s Bechtel and in Mexico, Bechtel partners with Techint, one of three contractors that are finishing the Dos Bocas refinery in Tabasco [state]. So, obviously, the two of them are important development partners for Mexico Pacific.

Regarding the gas pipeline, I can share that, based on a tender, [Mexico’s GDI Sicim Pipelines and Bonatti México, a subsidiary of Italy’s Bonatti] have been selected. They will be the developers of the gas pipeline.

These projects traditionally take four years to develop. The gas pipeline advances a little faster than the plant, as it must be ready several months before the plant's commissioning. The start is imminent ... we’ll see the laying of the first stone [this year].

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BNamericas: When would the liquefaction plant project start?

Alonzo: We're managing to start full activities in the first quarter. Having said this, let's remember that projects can start earlier with early works like preparations. People are working on site in Puerto Libertad already. So, there's activity now, but I tell you officially that the final investment decision for the first two trains will come in the first quarter of 2024 and for the third train in the first half of 2024.

BNamericas: In November, Sonora state authorities mentioned that Mexico Pacific will organize an exhibition for local suppliers as part of the construction phase. Do you have an update?

Alonzo: Mexico Pacific has an office in Houston … it has an office in Hermosillo, Sonora, and obviously a center in Puerto Libertad. Mexico Pacific's largest office is the Mexico one, not the Houston office.

The general management committed to Mexico Pacific projects, specifically Saguaro Energía, being Mexican projects. So, at Mexico Pacific offices you’ll meet a lot of [Mexican] people … and much of the procurement of equipment and materials [is Mexican] as well.

Obviously some equipment etc. comes from abroad but a large amount is sourced in Mexico. I was talking recently to the senior team and we’ll buy a good amount, including pipe, in Mexico.

There's a commitment [to Mexico] as part of the project's economic benefit plan.

BNamericas: What are the origins of Mexico Pacific? Where does the capital to finance this project come from?

Alonzo: The company is domiciled in the US. In Mexico, the operating entities are Mexican entities. The regulated entities, the permitted ones, the owners of the assets are Mexican companies. And the capital behind it, at least so far, is from an investment fund called Quantum Energy Partners. It is based in Houston, Texas.

BNamericas: Sonora’s governor Alfonso Durazo Montaño said Saguaro Energía is part of the US$48bn federal Plan Sonora sustainable energy strategy, which includes a 1GW solar park in Puerto Peñasco. When did Mexico Pacific decide to invest in the state?

Alonzo: This project has been planned many years before Durazo entered the administration, and gas purchase contracts, for example, with federal utility CFE, are for 20 years. The contracts for the sale of liquefied natural gas to our clients are 20-year contracts, but this is not a 20-year project. This project will last many more years.

Why am I telling you this? Because this project, like many others, transcends administrations. We feel fortunate to constantly receive support from governor Durazo. It’s important for him … and it's important for the future of his state.

BNamericas: Why did you choose Sonora?

Alonzo: When you ... want to reduce travel time and cost, then you get as close as you can to the west of Mexico. But that's not the only consideration. There are also access considerations, not only for our customers but also for us to access gas. 

We also consider where we can achieve an installation of this caliber with minimum environmental impact in urban centers. This is how we found Puerto Libertad, where we can connect with a pipeline to the US with minimal invasion or minimal impact.

BNamericas: And why Puerto Libertad?

Alonzo: Puerto Libertad is a very deep port. It has a depth of 15m, even more in certain parts, and that allows ships with very deep drafts to dock without requiring works on the coast, without having to move soil.

BNamericas: Natural gas is the main fuel source in Mexico and represents 48% of electricity generation, while 70% is imported from the US. But environmentalists claim it’s not a sustainable source, and the government doesn’t consider it clean energy. What's your view?

Alonzo: The gas comes from beneath the soil along with oil. Gas is a byproduct. So if you don't use that gas, it vents and, in the worst case [methane is released into the atmosphere].

The consequence of not using it is much worse. The consequence of not shipping it to Asia leads Asian economies to rely on other fuels, such as coal, to sustain growth and energy demand. And coal is 10 times more polluting than gas.

We think that gas is a fundamental part of any transition to cleaner energies and we're proud that Mexico is participating in such a leading way in that transition.