As early as next year, the U.S. fossil fuel industry will gain its first foothold in a valuable shortcut to selling natural gas to Asia. The shortcut goes directly through Mexico.
The new route could roughly halve travel times to energy-hungry Asian nations by delivering gas to a marine terminal on Mexico’s Pacific coast, bypassing traffic and Panama Canal choked by drought.
The terminal is a symbol of a huge change taking place in gas trading, a change that will influence the use of fossil fuels around the world for decades and will have consequences in the fight against climate change.
The American fracking boom has transformed the United States into the the largest gas producer in the world and exporter. At the same time, the rest of the world has begun to use more and more gas – in power plants, factories and homes – in part to move away from polluting fuels like coal and oil. Demand is growing particularly in China, India and the rapidly industrializing countries of Southeast Asia.
In Mexico, the action is focused for now on a gas terminal, Energía Costa Azul, which was originally designed to send gas in the other direction: for more than a decade it has unloaded gas from Asian tankers and piped it to California and Arizona to be burned to produce electricity.
Fracking changed everything. Now Costa Azul, trapped between the agave-covered mountains of Baja California and the vast Pacific Ocean, is undergoing a $2 billion transformation into an export facility for U.S.-produced gas. It is the first in a network of gas export facilities planned on Mexico’s west coast.
Skyrocketing production in the United States, particularly in the Permian Basin of West Texas, combined with growing global appetite, has raised concerns that gas use could slow the world’s transition to cleaner energy sources, such as solar or wind, which do not produce the same amount of energy. greenhouse gases that cause climate change. Last month the Biden administration stopped the approval process for new export terminal projects in the US while considering the effects of gas on global warming.
The pause also affects several proposed Mexican projects, because they would be exporting American gas, although not to Costa Azul, which already has its approvals and is mostly completed. Sempra, the Costa Azul construction company, declined to comment.
If the five planned terminals in Mexico were eventually built and operated at the proposed volumes, Mexico would become the world’s fourth largest gas exporter. In theory, each terminal would operate for decades.
This has alarmed activists who worry not only about climate change but also about possible pipeline leaks and increased shipping traffic in the Gulf of California. that is so biodiverse It is sometimes known as “the Aquarium of the World.”
“Operating those export projects would mean not only a huge amount of carbon and methane emissions but also the industrialization of a pristine ecosystem,” said Fernando Ochoa, who directs Northwest Environmental Defense, a nonprofit organization that focuses on the region.
In addition to being closer to Texas gas fields than California, Mexico’s less stringent environmental regulations and cheaper construction costs are some of the reasons these export terminals are proposed there instead of off the coast. western United States. But analysts say these terminals are quintessentially American: They are mostly owned, operated and supplied by American gas companies.
“Any expansion in Mexico is equivalent to an expansion in the United States,” 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, tankers could pass through the Panama Canal relatively quickly and travel times from export terminals in the Gulf of Mexico to Asia were reasonable. But the drought in Panama has drastically reduced the number of ships passing through the canal every day.
The fossil fuel industry has touted gas as cleaner burning than oil or coal. But recent studies have questioned his respect for the climate, particularly in situations where it is transported longer distances around the world, consuming more energy in shipping. Additionally, the process of liquefying the gas to make it suitable for transportation is incredibly energy intensive.
The Mexican government did not respond to a request for comment and has not commented publicly on President Biden’s directive.
State and federal officials in Mexico have touted 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 election in June. The favorite, Claudia Sheinbaum, former mayor of Mexico City, is a prominent environmentalist.
Projected gas demand figures in Asia have attracted investors from around the world to the Gulf Coast in recent years. Proposals for new export terminals have proliferated. Long before the blades begin construction, the gas that would be exported from them has already been contracted for delivery decades from now.
Muthu Chezhian, chief executive of LNG Alliance, a Singapore company behind a plan to build an export terminal in the Mexican state of Sonora, said Biden’s directive had made potential Asian buyers nervous. They had previously been palpably enthusiastic about the project and had felt confident about nearly a decade of reliable gas expansion in the United States.
“It has sent shock waves through Asian demand markets,” he said recently. “I got a call this morning from China and didn’t have a sure answer about what this might mean for some aspects of our project.”
Their project already has approval from the Department of Energy, meaning there’s a good chance it will still be built.
Unless their investors get scared and back out.
Or unless it can’t meet the 2028 deadline to start operating. Missing that deadline would require requesting an extension from the Department of Energy. But Biden has also suspended the extensions.
The proposed largest export terminal along the Gulf of California, called Mexico Pacific, faces much longer odds. It would be approximately 10 times larger than Costa Azul if all proposed phases were built. But although it also has approval from the Department of Energy, its deadline to begin exporting is next year. Since construction has been going on for years and has not yet begun, analysts said the project will almost certainly need to apply for an extension.
“Côte d’Azur maintains 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 project proposed on US soil, the Venture Global project. CP2 project.
México Pacífico did not respond to a request for comment on the status of the project.
Environmental activists like Ochoa see its delay and possible disappearance as a large 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 of these projects and that investment craves certainty, this will surely be detrimental to them.”
The ripple effects on the global gas market created by President Biden’s directive are still shaking out, analysts said, and it is still unclear how long the pause will remain in effect. The question of who will win the US presidential election in November also looms over the market.
But in an industry that often sells its product through long-term contracts decades in advance, investors are likely to look at American competitors in the gas market, as well as current operators in the United States and Mexico with room to grow.
“Other big producers like Qatar and Australia stand to gain now,” said Emily McClain, vice president of gas market research at Rystad Energy. “And within the United States and Mexico, all the projects that have received approval and will not need an extension are going to experience a huge rush of interest because the others will probably be at least a year behind schedule.”