Mexico begins its own LNG buildout as US developers look to the south

Leer éste artículo en español.

Environmental activists have turned a spotlight in recent months on the rapid expansion of liquefied natural gas export terminals along the Gulf Coast of the United States, calling attention to the ramifications for nearby communities and the climate.

But another buildout of liquefied natural gas (LNG) export terminals is occurring farther to the south, and this one so far has faced less public scrutiny.

At least a half-dozen LNG export projects are in progress in Mexico, split evenly across the country’s east and west coasts. At least two of these facilities are under construction: New Fortress Energy’s Altamira plant in Tamaulipas, which is expected to begin operations in the next several months after its original startup date was pushed back last fall, and Sempra’s Energía Costa Azul plant at an existing LNG import terminal in Baja California. The remaining proposals are in earlier, and less certain, stages of development.

While the planned export terminals are located in Mexico, they will mostly process and ship natural gas that is sent in by pipeline from gas fields in the U.S., including the Permian Basin in Texas and New Mexico. Western drillers with large gas supplies and limited access to the Gulf have viewed Mexico as their most promising gateway to international markets ever since plans for terminals on the U.S. West Coast fell through.

The U.S. already exports more gas to Mexico than to any other country: Nearly one-third of all U.S. gas exports — just under 5% of total U.S. gas production — went to Mexico in 2022, federal data shows. Virtually all of it was transported by pipeline. Mexico, for its part, imports about twice as much gas from the U.S. as it produces domestically.

“Mexico is highly dependent on natural gas, and it is highly dependent on those natural gas imports,” said Diego Rivera Rivota, a senior research associate at Columbia University’s Center on Global Energy Policy. ​“Virtually all — 99% — of imports come from the United States, and in particular, from Texas.”

The U.S. averaged close to 11 billion cubic feet of LNG exports globally and 6 billion cubic feet of pipeline exports to Mexico per day in 2022. The combined capacity of the six Mexican export projects that are currently moving forward, by comparison, is between 5 billion and 6 billion cubic feet per day. If all of the proposed stages are completed, the new export capacity will amount to approximately two-thirds of Mexico’s current total daily gas demand.

“If some of these projects — not even all of them, but some of these projects — did come to fruition, then that would put severe stress on the flows and the existing infrastructure pipeline capacity in Mexico,” Rivera Rivota said. The emergence of an export market that uses gas from the U.S., he went on, could create ​“competition with domestic demand, as well as other potential LNG export projects.”

Federal analyses have repeatedly found over the last decade that increased U.S. LNG exports will result in higher prices for American consumers, despite also spurring more gas production. Because most of the LNG shipped out of Mexico will come from the U.S., its effects on the market will be felt across both countries.

The projects proposed in Mexico are generally smaller than those at the forefront of the U.S. LNG debate, such as Venture Global’s Calcasieu Pass 2 (CP2) terminal in Louisiana, which if completed will have a transport capacity of more than 4 billion cubic feet per day. Still, the facilities’ climate and environmental justice impacts are expected to be significant. The DOE estimated that the Altamira plant’s emissions — not counting its upstream and downstream impacts — will be equivalent to more than 26 million metric tons of carbon dioxide between 2024 and 2050, comparable to the emissions from about 2.5 gas-fired power plants over the same period of time.

After failing to convince state regulators to approve an LNG export terminal anywhere along the U.S. West Coast, some Western oil and gas companies seeking access to the global market turned to Mexico. Many in the industry had pinned their hopes on the Jordan Cove project in Oregon, which inched forward for a decade and a half — despite resistance from landowners, environmental groups and tribes — before the company behind it pulled out for good in 2021. Since then, producers operating in the Western U.S. have urged federal lawmakers to prioritize opening a channel for their gas to flow from the Pacific Coast to Asia.

LNG projects haven’t faced the same level of opposition in Mexico (though a number of environmental groups, both local and international, are pushing back). Developers see logistical perks to building in Mexico, too: LNG tankers leaving its western shores will be able to reach growing markets in Asia without navigating the Panama Canal. The shorter route saves time and dodges the prolonged drought in Panama that is diminishing water levels in the canal and causing shipping delays.

But LNG export projects in Mexico also come with a higher level of risk than their counterparts in the U.S., said Arthur Deakin, director of the energy practice at the Latin America–focused research firm Americas Market Intelligence. The gas has to cross an international border just to reach the export terminals, he said, leaving the facilities’ long-term prospects vulnerable to the shifting politics of two different governments.

The Biden administration’s recent suspension of new LNG export permits adds another layer of uncertainty. Because the Mexican projects will be fed by U.S. pipelines, decisions about whether to approve the terminals’ exports to other countries — which are technically re-exports of imported gas — still fall to the U.S. Department of Energy.

At least two of Mexico’s LNG projects already have DOE approval, but the rest will have to wait out the pause alongside the proposed U.S. export terminals that haven’t yet secured an export permit.

Advocacy groups that have fought for years against the buildout on the Gulf Coast hope the Biden administration’s updated standards will stop all new LNG projects that haven’t yet been authorized.

“We cannot continue to expand the amount of gas that we’re exporting…at this critical moment in time,” said Cathy Collentine, director of the Sierra Club’s Beyond Dirty Fuels Campaign. ​“The Department of Energy needs to cement this pause and reject these terminals once and for all” to expedite the energy transition.

If the Biden administration adopts a more stringent review process, even the projects in Mexico (and in the U.S.) that already have permission to send LNG anywhere in the world could stall. The terms of their DOE permit require them to start exporting LNG within seven years. Any that fail to meet that deadline may have to reapply and face that heightened scrutiny.

In other words, the permitting freeze — and whatever comes of it — could be as pivotal for the projects in Mexico as it is for those in the U.S.