As early as next year, the US fossil fuel industry will gain its first foothold in 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 in half by channeling gas to a marine terminal on Mexico’s Pacific coast, bypassing the traffic-choked and drought-choked Panama Canal.
The terminal symbolizes a huge shift underway in gas trading, which will influence the use of fossil fuels across the world for decades and have consequences for the fight against climate change.
The American fracking boom has turned the United States into the world’s largest producer and exporter of gas. At the same time, the rest of the world began using more and more gas – in power plants, factories and homes – in part to move away from climate-polluting fuels like coal and oil. Demand is growing particularly in China, India and rapidly industrializing Southeast Asian countries.
In Mexico, the action is currently focused on a gas terminal, Energía Costa Azul, which was originally designed to send gas in the opposite direction: for more than a decade it has been unloading gas from Asian tankers and channeling it to California and Mexico. Arizona to be burned to produce electricity.
Hydraulic fracturing changed everything. Now the Costa Azul, sandwiched between the agave-covered mountains of Baja California and the vast Pacific Ocean, is undergoing a $2 billion transformation into a gas export facility produced in the United States. It is the first in a network of gas export facilities planned on Mexico’s west coast.
Rising production in the United States, especially in the Permian Basin of West Texas, combined with the world’s growing appetite has raised concerns that gas use could delay the world’s transition to cleaner energy sources such as solar or wind, which do not produce the greenhouse gases that cause climate change. Last month, the Biden administration paused the process of approving new export terminal projects in the US while it considers the gas’s effects on global warming.
The pause also affects several proposed Mexican projects, because they would be exporting American gas, but not Costa Azul, which already has approvals and is almost complete. Sempra, the company that builds Costa Azul, declined to comment.
If all five planned terminals in Mexico were eventually built and operated at the proposed volumes, Mexico would become the fourth largest gas exporter in the world. Each terminal would theoretically operate for decades.
This has alarmed activists who worry not only about climate change, but also potential pipeline leaks and increased shipping traffic in the Gulf of California, which is so biodiverse it is sometimes referred to as “the Aquarium of the World.”
“Operating these export projects would mean not only a large amount of carbon and methane emissions, 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 the 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 instead of Costa. Western US. But analysts say these terminals are quintessentially American: Most of them are owned, operated and supplied by U.S. gas companies.
“Any expansion in Mexico is equivalent to expansion in the U.S.,” said Gregor Clark, who researches energy projects in the Americas for Global Energy Monitor. The United States has seven export terminals in operation and five more under construction, and is expected to double its export volumes in the next four years alone.
Until recently, oil tankers were able to pass 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 drastically reduced the number of ships passing through the canal each day.
Gas has been considered by the fossil fuel industry to be cleaner than oil or coal. But recent studies have questioned its climate compatibility, especially in situations where it is transported longer distances around the world, consuming more energy in maritime transport. Furthermore, the process of liquefying the gas to make it suitable for transportation is energy-intensive.
The Mexican government did not respond to a request for comment and has not publicly commented on President Biden’s directive.
State and federal officials in Mexico have praised the proposed export terminals as job creators, but discussion of their climate-related merits has featured little in the campaign leading up to the country’s presidential elections in June. The favorite, Claudia Sheinbaum, former mayor of Mexico City, is a notable environmentalist.
Projected gas demand figures in Asia have attracted investors from around the world to the Gulf of California coast over the past few years. Proposals for new export terminals proliferated. Long before the excavators started operating, the gas that would be exported from them was already contracted for deliveries decades from now.
Muthu Chezhian, CEO of LNG Alliance, a Singaporean company behind a plan to build an export terminal in the Mexican state of Sonora, said Biden’s directive made potential Asian buyers nervous. Previously, they were visibly enthusiastic about the project and felt assured of nearly a decade of reliable gas expansion in the United States.
“This sent shockwaves through Asian demand markets,” he said recently. “I got a call this morning from China and I didn’t have a firm answer as to what this might mean for some 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 your investors get scared and give up.
Or unless it fails to meet the 2028 deadline to begin operations. Missing this deadline would require requesting an extension from the Department of Energy. But Biden also paused the extensions.
The largest proposed export terminal along the Gulf of California, called Mexico Pacific, faces much longer odds. It would be about 10 times larger than Costa Azul if all proposed phases were built. But although it also has approval from the Department of Energy, the deadline to start exporting is next year. Because construction has been years in the making and has not yet begun, analysts said the project will almost certainly need to request an extension.
“The Blue Coast has maintained dependence on fossil fuels for a period of 20 to 30 years,” Clark said. “But Mexico Pacific would be huge by world standards.” In fact, if all proposed phases were built, it would be even larger than the largest proposed project on American 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 Ochoa see the delay and potential disappearance as a huge, unexpected victory. “Biden’s decision is a game changer,” he said. “If we look at the big picture and understand that delays are the biggest enemies of these projects and that investment requires certainty, this will certainly be detrimental to them.”
The ripple effects on the global gas market created by President Biden’s directive are still unfolding, analysts said, and it is not yet clear how long the pause will remain in effect. The question of who will win the US presidential elections in November also looms over the market.
But in an industry that often sells its product through long-term contracts decades in advance, investors will likely look to U.S. competitors in the gas market, as well as current operators in the United States and Mexico with room to expand. growth.
“Other large producers like Qatar and Australia could gain now,” said Emily McClain, vice president of gas market research at Rystad Energy. “And in the US and Mexico, all the projects that have received approval and will not need an extension will see a lot of interest because the others will likely be at least a year late.”