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Bates White's Nicolas Puga and KEMA, Inc., advise California Energy Commission on Costa Azul (Baja), México, LNG terminal and storage expansion

October 21, 2008

The California Energy Commission (CEC) released the third in a series of reports that address the infrastructure, expansion plans, and growth projections of natural gas and electric operations in the California–México border region. Bates White PartnerNicolas Puga coauthored the report, “Comparative Analysis of Future Gas and Electric Infrastructure Options in the California/México Border Region,” with Karin Corfee and David Korinek of KEMA, Inc.

By identifying and analyzing possible long-term scenarios, the report explores the potential effects that planned expansion of commercial liquefied natural gas (LNG) terminal and storage facilities at Costa Azul in Baja California (Baja), México, might have on energy infrastructure development in the California–México border region. In particular, such development has implications for the potential supply of electricity to Southern California.

While Costa Azul’s Phase 1 capacity exceeds the demand forecast of natural gas markets within Baja (and there are no plans to export any natural gas from Baja to mainland México at this stage), the incremental LNG capacity expected from Costa Azul Phase 2 will be surplus to Baja’s energy needs and will be available for export to the United States. If this surplus were used to fuel new electric generation projects, it could supply approximately 8,500 MW of new capacity.

The report states that an infrastructure investment of $3.7–$6.6 billion (in 2012 dollars) will be needed to deliver the full 8,500 MW of electric power to Southern California load centers, and it presents the following recommendations:

  • Regulators and governmental agencies on both sides of the border should proactively shape the direction of future infrastructure
  • Detailed multiyear production cost modeling and gas market clearing price simulations should be conducted at various levels of generation expansion and benchmarked against simply allowing surplus natural gas exports from Baja to displace other sources of natural gas in the United States
  • One potential solution to siting contraints on new transmission to export Baja generation in excess of 3,000 MW to the United States should be offshore submarine cables running parallel to the coast of either California or México
  • México’s energy agencies should consider incentives for the development of México’s electricity grid
  • Requirements for special power plant cooling facilities (for example, dry cooling towers) should be determined on a site-by-site basis
  • Any major new electric generating plants should be preferably located along the Pacific Coast, near the Costa Azul terminal
  • The desired mix of gas-fired generation vs. renewable resources in the overall resource portfolio for the state of California should be assessed to determine what weight should be placed on the development of new gas-fired generation fueled by the Baja LNG surplus in coming decades

Nicolás Puga, MSc, has more than 20 years of experience as a senior energy advisor and executive of energy consulting services in international marketing, business development, and operations. Mr. Puga has worked as a technical advisor on energy infrastructure project development, energy end-use efficiency, renewable energy technology policies and marketing. Mr. Puga has advised numerous private and public sector clients in the United States, Canada, México, Argentina, Chile, Venezuela, Colombia, the Philippines, and Australia.