[ad_1]
As soon as next year, the United States’ 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 American 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 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 American-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. Last month 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 American 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.
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-friendliness, particularly in situations where it is transported longer distances around the globe, consuming more energy in shipping. In addition, the process of liquefying gas to make it suitable for transport is incredibly energy intensive.
The Mexican government didn’t respond to a request for comment, and hasn’t 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 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 coastline 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 C.E.O. 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. Previously they had been palpably excited about the project, and had felt assured by nearly a decade of reliable United States gas expansion.
“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.
Unless its investors get spooked and back out.
Or unless it can’t meet a 2028 deadline to start operation. Missing that deadline would require applying for an extension from the Department of Energy. But Biden has paused extensions, too.
The biggest proposed export terminal along the Gulf of California, called Mexico Pacific, faces far longer odds. It would be roughly 10 times as large as Costa Azul if all its proposed phases were to be built. But while it also has Department of Energy approval, its deadline to start exporting is next year. Since construction takes years, and hasn’t yet begun, analysts said the project would almost certainly need to apply for an extension.
“Costa Azul locks in fossil fuel dependency over a 20- to 30-year period,” said Mr. Clark. “But Mexico Pacific would be enormous by world standards.” In fact, if all its proposed phases were to be built, it would be even larger than the largest proposed project on U.S. soil, Venture Global’s CP2 project.
Mexico Pacific didn’t respond to a request for comment on the project’s status.
Environmental campaigners like Mr. Ochoa see its delay and potential demise as a big and unexpected win. “Biden’s move is a game changer,” he said. “If we look at the big picture, and we understand that delays are the biggest enemies for 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 remains unclear how long the pause will remain in effect. The question of who will win the U.S. 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 toward U.S. competitors in the gas market as well as current operators in the United States and Mexico with room for growth.
“Other big producers like Qatar and Australia stand to win now,” said Emily McClain, vice president of gas market research at Rystad Energy. “And within the U.S. and Mexico, all of the projects that have received approval and won’t need an extension are going to see a rush of interest because the others are going to have, probably, at least a year of delay.”
[ad_2]