Energy Firms Get a Foothold in Mexico

A key energy company has taken a first step toward building giant coal-burning electricity plants in Baja California and in three other Mexican cities, part of global energy companies’ increasing interest in serving Mexicans and Californians.

Mexican energy officials say they are receptive to coal projects that are environmentally friendly. Facing an energy crunch in coming years, and burdened with laws that dissuade outside investment in its rich petroleum resources, Mexico is pursuing coal, liquid natural gas and nuclear power to make up for the energy shortfall.

Two companies planning to build liquid natural gas plants in Baja confirmed last week that they have secured sites for facilities, each of which could cost $250 million or more.

Baja California especially has attracted the interest of the world’s major energy developers because of projected growth in population and business and continued demand for power north of the border in California, to which energy companies can export their surplus electricity.

EnviroPower of Lexington, Ky., has approached top government officials in Baja California and at the federal level about building a coal-burning power plant near Mexicali and three others at sites that include the Pacific port cities of Manzanillo and Lazaro Cardenas.

The Baja plant would be fed by train-delivered coal from the interior of Mexico or from U.S. coal fields, government sources said. Mexicali, the Baja state capital, is 125 miles east of San Diego. The project would cost as much as $700 million to build, sources said.

Executives at EnviroPower, which is controlled by the Addington coal mining family of eastern Kentucky, declined to comment. But the project proposal was confirmed by Mexican government officials and other sources. A certain amount of power generated there would be guaranteed to Mexico and the surplus would be exported to California, they said.

Mexico’s receptivity to the coal project reflects the government’s anxiety about potential shortages in both electricity generation and the hydrocarbon fuels, especially natural gas, it needs to power the country. Although Mexico is believed to have vast natural gas reserves, it lacks the expertise and financing to develop them.

Mexico isn’t facing an immediate energy crisis on the order of those in California and Brazil, but it could begin experiencing power blackouts on a nationwide basis in 2004 unless it gets an immediate infusion of electricity-generating capacity, analysts project. Regulators say Mexico needs to add 20,000 megawatts to its 35,000-megawatt grid over the next eight years, or about 40 mid-size power plants.

The crunch is compounded by Mexico’s natural gas deficit, which will widen dramatically in coming years. Analyst Sondra Scott of Cambridge Energy Research Associates said Mexico’s gas consumption could rise to 8 billion cubic feet per day from the current 4.5 billion in just five years.

Mexico must import 200 million to 300 million cubic feet of gas daily, or about 5% of its consumption, a deficit that will grow to as much as 1.2 billion cubic feet a day in two to three years, Scott said.

That grim calculation is part of the reason President Vicente Fox is expected this year to propose laws to open the door to foreign investments in fossil fuel production. But the political volatility of any proposal to give foreigners access to Mexican oil and gas makes its outcome uncertain.

The Mexican energy squeeze--plus export opportunities to California--is the reason Baja has become a hotbed for energy projects, from power plants to liquid natural gas terminals. The LNG proposals call for liquefied natural gas to be shipped from Asia, South America or Africa, and processed and re-gasified at Baja terminals.

The Baja coal-fired plant proposal, which would cost $450 million or more and would crank out 500 to 750 megawatts of power in its first phase, represents a significant departure from previous projects. There are only two coal-burning power plants in Mexico, both in Rio Escondido in Coahuila state on the Texas border.

Founded two years ago, EnviroPower has two coal-burning power plants under construction in Kentucky and Illinois, each capable of generating 500 megawatts of power, enough to light half a million homes. The company also has five projects in Kentucky and Indiana on the drawing boards.

The company says its “circulating fluidized bed” technology enables it to burn coal and coke cleanly, meeting rigid environmental standards.

The LNG projects are much further along than the coal-fired plant, with several companies saying they are nailing down sites, gas supplies and customers.

A joint venture of El Paso Corp. and Phillips Petroleum has secured an LNG terminal site in Baja, a Phillips spokeswoman said Thursday. Government sources said the site is adjacent to the Rosarito power plant complex about 20 miles south of the U.S.-Mexico border. A spokesman for Houston-based El Paso Corp. said Thursday that the company could not confirm the selection of a specific site in Baja California.

El Paso and another partner, Shell Oil Co., have announced a partnership to build an LNG terminal in Altamira on Mexico’s Gulf Coast.

Sempra Energy, the San Diego-based parent of San Diego Gas & Electric and Southern California Gas, also said Thursday that it has secured a site for an LNG terminal midway between Rosarito and Ensenada, which would place it about 55 miles south of the border.

BP and Marathon Oil also are searching for LNG terminal sites in Baja, state officials said, focusing on the Ensenada area.

No permits have been issued by the Mexican government for LNG projects because the regulations for operating the facilities and for pricing energy are about two months from completion, a government official explained.

Energy Secretary Ernesto Martens has said publicly that he favors LNG projects as answers to Mexico’s energy needs. He said Baja California could ultimately be the site of two or more such facilities.