Mexico key with U.S. gas producers racing to sell to Asia
BAJA CALIFORNIA, Mexico — As soon as next year, the U.S. fossil fuel industry will gain its first foothold on a valuable shortcut to sell natural gas to Asia. The shortcut goes straight through Mexico.
The new route could cut travel times to energy-hungry Asian nations roughly in half by piping the gas to a shipping terminal on Mexico’s Pacific coast, bypassing the traffic- and drought-choked Panama Canal.
The terminal is symbolic of an enormous shift underway in the gas trade, one that will influence fossil fuel use worldwide for decades and have consequences in the fight against climate change.
The U.S. fracking boom has transformed the country into the world’s largest gas producer and exporter. At the same time, the rest of the world has begun using ever more gas — in power plants, factories and homes — partly to move away from dirtier fuels like coal. Demand is particularly growing in China, India and fast-industrializing Southeast Asian countries.
In Mexico, the action is centered for now on a gas terminal, Energía Costa Azul, that 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, pinched between Baja California’s agave-covered mountains and the vast Pacific Ocean, is undergoing a $2 billion transformation into an export facility for U.S.-produced gas. It’s the first in a network of gas-exporting facilities planned down Mexico’s west coast.
Soaring 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 world’s transition to cleaner energy sources, like solar or wind, that don’t produce the greenhouse gases causing climate change. In January, the Biden administration paused the approval process for new export-terminal projects in the U.S. while it considers the effects of gas on global warming.
The pause also affects several proposed Mexican projects, because they would be exporting U.S. gas, although not Costa Azul, which already has its approvals and is mostly complete. Sempra, the company building Costa Azul, declined to comment.
Were all five planned terminals in Mexico to eventually be built and operate at their proposed volumes, Mexico would become the fourth-largest exporter of gas in the world. Each terminal would theoretically operate for decades.
That has alarmed activists who worry not just about climate change but 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.”
“The operation of those export projects would mean not only a great deal of carbon and methane emissions but also the industrialization of a pristine ecosystem,” said Fernando Ochoa, who runs Northwest Environmental Defense, a nonprofit focusing on the region.
Besides being closer to Texan 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 the U.S.’ West Coast. But analysts say that these terminals are essentially American ones: They are mostly owned, operated and supplied by U.S. gas companies.
“Any expansion in Mexico is tantamount to an expansion in the U.S.,” said Gregor Clark, who researches energy projects across the Americas for Global Energy Monitor. The United States has seven operating export terminals and five more under construction and is forecast to double its export volumes within the next four years alone.
Up until recently, tankers could make it through the Panama Canal relatively quickly, and journey times from Gulf of Mexico export terminals to Asia were reasonable. But drought in Panama has severely curtailed the number of ships passing through the canal each day.
The Mexican government didn’t respond to a request for comment and hasn’t commented publicly on President Joe 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 campaigning preceding the country’s presidential election in June. The front-runner, Claudia Sheinbaum, formerly the mayor of Mexico City, is a noted environmentalist.
Figures for projected demand for gas in Asia have attracted investors from around the world to the Gulf of California over the past few years. Proposals for new export terminals have proliferated. Well before shovels break ground, the gas that would be exported from them has been contracted for deliveries decades from now.
Muthu Chezhian, the 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 had made potential Asian buyers nervous.
“It has sent shock waves through Asian demand markets,” he said recently. “I got a call this morning from China, and I didn’t have a confident answer for what this might mean for some aspects of our project.”
His project already has Department of Energy approval, which means there’s a good chance it will still be built.