Starting next year, the United States’ fossil fuel industry will get its first leg of a valuable shortcut to selling natural gas to Asia. The shortcut goes straight through Mexico.
The new route could cut travel times to energy-hungry Asian countries by nearly half, funneling natural gas to a shipping terminal on Mexico’s Pacific coast, bypassing the traffic-choked Panama Canal and drought.
The terminal symbolizes a massive shift underway in natural gas trade that will affect the use of fossil fuels worldwide for decades and have implications for the fight against climate change.
The American fracking boom has turned the United States into the world’s largest natural gas producer and exporter. At the same time, the rest of the world has started using more and more gas – in power plants, factories and homes – in part to move away from dirtier fuels like coal. Demand is growing particularly in China, India and the rapidly industrializing countries of Southeast Asia.
In Mexico, the action currently centers on a natural gas terminal, EnergĂa Costa Azul, originally designed to send natural gas the other way: For more than a decade it has unloaded gas from Asian tankers and piped it to California and Arizona. burned to produce electricity.
Fracking changed everything. Now Costa Azul, wedged between the agave-covered mountains of Baja California and the vast Pacific Ocean, is being turned into a $2 billion American-made gas export facility. It is the first in a network of natural gas export facilities planned for Mexico’s west coast.
Rapid production growth in the United States, particularly in the Permian Basin of West Texas, coupled with growing global appetite, has raised concerns that gas use could delay the world’s transition to cleaner energy sources such as solar or the wind, which do not produce greenhouse gases that cause climate change. Last month, the Biden administration halted the approval process for new U.S. export terminal projects while it examines the effects of natural gas on global warming.
The freeze also affects several proposed Mexican projects because they would export US gas, though not Costa Azul, which already has its approvals and is mostly complete. Sempra, the company building Costa Azul, declined to comment.
If the five planned terminals in Mexico were eventually built and operating at their proposed volumes, Mexico would become the world’s fourth-largest natural gas exporter. Each terminal would theoretically operate for decades.
That has alarmed activists worried not only about climate change, but also potential pipeline leaks and increased shipping traffic in the Gulf of California, which is so biodiverse that it is sometimes referred to as “the aquarium of the world.”
“Operating these export projects would mean not only large emissions of carbon and methane, but also the industrialization of a pristine ecosystem,” said Fernando Ochoa, who runs Northwest Environmental Defense, a nonprofit focused on the region.
In addition to being closer to Texas gas fields than California, Mexico’s less stringent environmental rules and cheaper construction costs are some of the reasons these export terminals are being proposed there rather than on the West Coast of the United States. USA. But analysts say these terminals are quintessentially American: mostly owned, operated and supplied by American natural gas companies.
“Any expansion in Mexico equals expansion in the U.S.,” said Gregor Clark, who researches energy projects across the Americas for the Global Energy Monitor. The United States has seven export terminals and five more under construction and is projected to double its export volumes in the next four years alone.
Until recently, tankers could get through the Panama Canal relatively quickly, and travel times from Gulf of Mexico export terminals to Asia were reasonable. But the drought in Panama has severely limited the number of ships that pass through the canal each day.
Gas has been touted by the fossil fuel industry as cleaner to burn than oil or coal. However, recent studies have questioned its climate friendliness, particularly in cases where it is transported over longer distances around the world, consuming more energy in shipping. Additionally, the process of liquefying the gas to make it transportable is incredibly energy intensive.
The Mexican government did not respond to a request for comment and did not comment publicly on President Biden’s directive.
State and federal officials in Mexico have touted the proposed export terminals as job creators, but talk of their climate-related benefits featured little in the campaign ahead of the country’s presidential election in June. The pioneer, Claudia Sheinbaum, former mayor of Mexico City, is a well-known environmentalist.
Data on projected natural gas demand in Asia has drawn investors from around the world to California’s Gulf Coast in recent years. Proposals for new export terminals have proliferated. Long before the shovels break, the gas that would be extracted from them is committed to deliveries decades from now.
Muthu Chezhian, CEO of LNG Alliance, a Singapore company behind a plan to build an export terminal in Mexico’s Sonora state, said Biden’s directive made potential Asian buyers nervous. Previously, they were very excited about the project and felt confident of nearly a decade of reliable expansion of United States natural gas.
“It has sent shock waves through the Asian demand markets,” he said recently. “He called me this morning from China and I didn’t have a solid answer as to what this might mean for certain aspects of our project.”
His project already has approval from the Department of Energy, which means there is a good chance it will still be built.
Unless his investors get spooked and back out.
Or unless it can’t meet the 2028 deadline to start operating. Missing that deadline would require the Department of Energy to apply for an extension. But Biden has also stopped overtime.
The largest proposed export terminal along the Gulf of California, called Mexico Pacific, faces much greater odds. It would be about 10 times larger than Costa Azul if all its proposed phases were built. But while it also has approval from the Department of Energy, the deadline for it to start exporting is next year. Since construction has been years in the making and has yet to begin, analysts said the project will almost certainly need to apply for an extension.
“Costa Azul locks in dependence on fossil fuels for a period of 20 to 30 years,” Mr Clark said. “But the Pacific of Mexico would be huge by world standards.” In fact, if all of its proposed phases were to be built, it would be even larger than the largest proposed project on US soil, Venture Global’s CP2 project.
Mexico Pacific did not respond to a request for comment on the status of the project.
Environmental activists like Mr. Ochoa see its delay and possible demise as a great and unexpected victory. “Biden’s move is a game changer,” he said. “If we look at the big picture and understand that delays are the biggest enemies for these projects and that investors want certainty, this will definitely be detrimental to them.”
The ripple effects on the global gas market created by President Biden’s directive are still reeling, analysts said, and it remains unclear how long the pause will remain in place. The question of who will win the US presidential election in November also dominates the market.
But in an industry that often sells its product through long-term contracts decades in advance, investors are likely to look to U.S. competitors in the natural gas market as well as incumbent operators in the United States and Mexico with room to grow.
“Other major producers like Qatar and Australia stand to gain now,” said Emily McClain, vice president of natural gas market research at Rystad Energy. “And within the U.S. and Mexico, all the projects that have been approved and won’t need an extension will see strong interest because the others will probably be at least a year behind schedule.”