Baja California dreaming: with natural gas running short, U.S. energy companies turn to Baja California to power up supply.

Environmentalists in California sued to prevent two new U.S.-owned power plants in Mexicali, run by Sempra Energy International and InterGen, from sending electricity across the border. The greens argued that the Mexican plants would pollute California in order to supply U.S. industry and homes. The U.S. federal judge ruling on the case determined that the plants could continue with their plan to supply the California power grid for one reason: California needs it.

The United States and its economy is the world's power hog and it's getting hungrier. Natural gas, too, is increasingly becoming the main source for power on the planet since it can be easily transported in a denser, liquefied state. But in the United States--one of the world's main producers of gas--supply at the end of May was down 38% from the previous year and 28% off the 5-year average.

Demand, meanwhile, is growing at an annual rate of 2.3%, according to the U.S. government's Energy Information Administration. Current high prices are projected to ease only moderately in 2004.

So U.S. oil and energy companies are heading south of the border, to Baja California, to meet domestic demand. Sempra is planning to build a liquefied natural gas facility in Ensenada, just south of California's border with Mexico, with a peak capacity of 500 million cubic feet per day. The project, slated to begin operating by 2006, will serve its local community, then ship excess production back to the United States.

Sources for the natural gas are still being negotiated says Darcel Hulse, president at California-based Sempra Energy, but it could be shipped in from as close as gas-rich Peru or Bolivia. "Baja is uniquely positioned because it can afford to build a larger facility, bringing the overall cost down because it can rely on the market north of the border for consumption," Hulse says.

Baja California, nearly separated from Mexico's mainland, is an obvious place to invest since it is interconnected to the United States' electrical transmission networks, not Mexico's, says Gregg Fishman, spokesman at California's Independent System Operator, which controls the flow of high-voltage power in 80% of California.

Tijuana 2020. The need for power in Mexico has also given U.S. companies a new target market. Houston petroleum company Marathon Oil has recently received approval from Mexico's electricity commission to go ahead with a $1.25 billion energy facility in Tijuana. "We identify Tijuana as a primary growth market," says Patti Weeditz, commercial director for the oil company. "The population of Tijuana should be equal to San Diego County combined by 2020." Marathon also intends to export excess production to the United States.

Mexico, meanwhile, faces its own power shortage. The country currently imports 10% if its internal demand for natural gas, but the Mexican government expects that by 2010 imports will account for nearly 20% of consumption even if production grows at an average annual rate of 9%. Residential and commercial consumption is now increasing, too, as a result of companies like Sempra and Marathon, which are laying the infrastructure in areas that previously had limited or no access.

Mexican President Vicente Fox is pushing the natural gas sector through increased investments in state-owned Petroleos Mexicanos (Pemex), including service contracts for exploration in new areas. But Pemex will have to increase production significantly to become a self-sufficient producer of natural gas.

Power Hungry

Consumption of natural gas in the United States and Mexico is on
the rise

            Mexico    U.S.

1970         0.4      21.1
1980         0.8      19.9
1990         0.9      18.7
2000         1.4      22.5
2005F        1.8      25.2
2010F        2.4      27.8
2015F        3.2      30.3
2020F        4.3      33

SOURCE: Energy Information Administration

F = Forecast

Note: Table made from bar graph.

MICHELLE GUEVARA * MIAMI