Them Russian Backfire bombers in standoff mode, equiped with French and Russian designed air-to-ship smartie crusiers manufactured at 10 cents on the dollar in China will come in handy :0)
Meantime, let us watch this opera ...
http://www.stratfor.biz/Print.neo?storyId=242596
Russia, Mexico and an Improbable LNG Plan
Jan 19, 2005
Summary
Russia and Mexico penned a deal by which they plan to jointly supply liquefied natural gas to the United States. However, the two states lack the technology and infrastructure to make it happen. In fact, Mexico's investment laws are so prehistoric that Mexico is about to become a chronic importer of natural gas.
Analysis
On Jan. 14, the state energy firms of Mexico and Russia -- Pemex and Gazprom -- preliminarily agreed to work jointly to supply the U.S. market with liquefied natural gas (LNG). The deal should be entertaining to watch; neither state has any experience in working with LNG, and Mexican-American natural gas infrastructure is both inadequate to the task and currently shipping natural gas south, not north. The deal highlights a Mexican problem that is rapidly coming to a head.
Unlike oil, natural gas cannot be shipped easily outside of a pipeline network. The only way to do it is to supercool the gas to liquid form and then load it onto specially designed tankers for shipment to a regasification terminal, where it is offloaded and warmed for transport in standard pipelines. Both Russia and Mexico lack supercooling and regasification facilities, and neither has the technological capabilities or necessary cash to construct them.
The deal -- and Stratfor uses that term in the loosest possible way -- is for Gazprom to purchase an LNG cargo from another producer and then sell the cargo to Mexico, which most likely will end up selling it to the United States. The idea is that Russia and Mexico are laying the financial and contact groundwork necessary for when Russia can produce the LNG itself and Mexico can import it directly for piped exports to its northern neighbor.
The two countries are getting a bit ahead of themselves.
Gazprom has flirted with LNG from time to time, but Russia is linked to its primary European customers by the world's largest natural gas transport network. Not only is Gazprom correctly focused on supplying its European customers, but it simply cannot afford the several billion dollar cost investment necessary to first exploit resources near its Murmansk port on the Arctic Ocean and then construct a liquefaction plant for LNG exports.
Gazprom's solution to this problem has been to propose that potential foreign partners come in and foot the bill in its entirety and teach Gazprom how to build/operate such facilities while giving Gazprom a fat chunk of the profits. Needless to say, no one has taken the "bait." Even if they did, the Russian Arctic is not a particularly friendly place. Assuming groundbreaking occurred today, the first LNG cargo probably would not be loaded until at least 2013.
Mexico's situation is equally odd. The Mexican Constitution contains a clause that makes foreign ownership of any petroleum asset flat out illegal. Understandably, there has not exactly been a rush of foreign investors investing in Mexican energy. Pemex is attempting to get around the problem with something called multiple service contracts (MSCs) in which foreigners explore, drill, produce, refine, transport and retail natural gas -- but do not technically own it. International enthusiasm has been rather damp, although the first such MSCs are expected to begin operations in 2005, assuming that legal challenges do not scrap them from the start.
Mexico is hopelessly unable to meet even its own demand. Archaic investment laws aside -- even the Russians and Nigerians allow foreign ownership -- Mexican demands for electricity are steadily increasing as Mexico becomes more integrated into the U.S. and global economies. Consequently, Mexican natural gas demand has risen by more than 50 percent during the past 10 years to some 45 billion cubic meters annually. And since local peculiarities keep Mexican natural gas in the ground, Mexico City has found itself forced to turn elsewhere.
Already Mexico is spending more than $2 billion annually to import about 9.4 billion cubic meters of natural gas from the United States. The flow has not gone the other way since 1985. But the United States is itself a natural gas importer, getting most of its import needs from Canada. It cannot serve as a reliable supplier for Mexico for long.
This has forced Mexico to look further abroad for suppliers, and it probably has found one in Australia. The Australians are already in advanced negotiations to supply a pair of international consortiums seeking to construct LNG regasification facilities in northwest Mexico -- about as far from Russia's proposed Murmansk LNG facility as one can get. The idea is to supply Mexico, and by extension southern California and Arizona just across the border.
Unlike the Russians, the Australians have an LNG industry that is up, running, reliable and cost competitive to the point that the Japanese, Chinese, Koreans and Taiwanese -- and now even the Mexicans -- are competing for Australian LNG. The problem, of course, is that while Mexico has some 425 billion cubic meters of natural gas in the ground -- about 60 percent of which is within sight of the U.S. border -- it lacks the political will or resources to take the steps necessary to supply itself.
Mexico will indeed be tying the knot with a foreign supplier to funnel LNG to the Americans, but it will be forced to soak up a great deal of those supplies itself -- and the partner will not be Gazprom.
Copyright 2004 Strategic Forecasting Inc. All rights reserved.
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