Starting next year, the U.S. fossil fuel industry will take its first foothold on a valuable shortcut to selling natural gas to Asia. The shortcut crosses directly into Mexico.
The new route could cut travel times to energy-hungry Asian countries by about half by carrying gas to a shipping terminal on Mexico's Pacific coast, bypassing the Panama Canal choked by traffic and drought.
The terminal is a symbol of a huge shift underway in the gas trade, one that will influence the world's use of fossil fuels for decades and have consequences in the fight against climate change.
America's fracking boom has transformed the United States into the world's largest gas producer and exporter. At the same time, the rest of the world began using ever more gas in power plants, factories and homes, in part to move away from dirtier fuels like coal. Demand is particularly growing in China, India and the rapidly industrializing countries of Southeast Asia.
In Mexico, the action is currently focused on a gas terminal, Energa Costa Azul, initially designed to transport gas in the other direction: for more than a decade, it has been unloading gas from Asian tankers and ships to California and Arizona to be burned to produce electricity.
Hydraulic fracturing changed everything. Today, the Costa Azul, wedged 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 the world's growing appetite, has raised concerns that gas use could delay the global transition to cleaner energy sources, such as solar or wind, that do not produce greenhouse gases. causing climate change. Last month, the Biden administration suspended the approval process for new export terminal projects in the United States while it examined the effects of gas on global warming.
The pause also affects several proposed Mexican projects because they would export U.S. gas, but not Costa Azul, which already has its approvals and is largely complete. Sempra, the company building Costa Azul, declined to comment.
If the five planned terminals in Mexico were ultimately 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.
That has alarmed activists who worry not only about climate change, but also potential pipeline leaks and increased shipping traffic in the Gulf of California, whose biodiversity is so rich it is sometimes called the 'Aquarium of the world.
Operating these export projects would not only lead to large 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 Texas gas fields than California, Mexico's less stringent environmental rules and lower construction costs are some of the reasons these export terminals are being proposed there rather than on the west coast of the 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 expansion in the United States, said Gregor Clark, who studies energy projects across 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 just the next four years.
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 significantly reduced the number of ships passing through the canal each day.
Gas has been touted by the fossil fuel industry as cleaner to burn than oil or coal. But recent studies have called into question its climate-friendly nature, particularly in situations where it is transported longer distances around the world, thus consuming more energy during shipping. Additionally, the process of liquefying 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 publicly commented on President Biden's directive.
Mexico's state and federal officials have touted the proposed export terminals as job creators, but discussions of their climate-related merits have received little attention in the campaign ahead of the country's presidential election in June. The favorite, Claudia Sheinbaum, former mayor of Mexico City, is a renowned environmentalist.
Figures for expected gas demand in Asia have attracted investors from around the world to the Gulf Coast in recent years. Proposals for new export terminals have multiplied. Long before the first shovels in the ground were started, the gas that would be exported had been the subject of contracts for deliveries decades from now.
Muthu Chezhian, CEO of LNG Alliance, a Singapore company behind a project to build an export terminal in the Mexican state of Sonora, said Biden's directive had made potential Asian buyers nervous . Previously, they were clearly excited about the project and felt reassured by nearly a decade of reliable gas expansion in the United States.
This sent shockwaves through Asian demand markets, he said recently. I received a call this morning from China and didn't have a sure answer on what this might mean for certain aspects of our project.
His project already has approval from the Department of Energy, which means there's a good chance it will be built anyway.
Unless its investors get scared and back off.
Or unless it can't meet the 2028 deadline to start operations. Missing this deadline would require requesting an extension from the Department of Energy. But Biden also suspended the extensions.
The largest proposed export terminal along the Gulf of California, called Mexico Pacific, faces much longer challenges. It would be around 10 times larger than Costa Azul if all the proposed phases were built. But although it also has approval from the Ministry of Energy, the deadline to start exporting is next year. Given that construction takes years and has yet to begin, analysts said the project would almost certainly require an extension request.
Costa Azul remains dependent on fossil fuels over a period of 20 to 30 years, Mr. Clark said. But Mexico Pacific would be huge by world standards. In fact, if all of the proposed phases were to be built, the project would be even larger than the largest proposed project on U.S. soil, the Venture Globals 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 potential demise as a significant and unexpected victory. Biden's decision is a game-changer, he said. If we look at the bigger picture and understand that delays are the biggest enemies of these projects and investments need certainty, it will surely be detrimental to them.
The ripple effects in the global gas market created by President Biden's directive are still being felt, analysts said, and it remains 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 products under 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 U.S. and Mexico which have room for growth.
Other major producers like Qatar and Australia now have every chance of winning, said Emily McClain, vice president of gas market research at Rystad Energy. And in the United States and Mexico, all the projects that have been approved and won't need an extension are going to see renewed interest because the others will probably be at least a year behind schedule.
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