U.S. Plans To Sell LNG To Asia Via Mexico

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LNG tanker

The U.S. has big plans to export its growing LNG supplies following a major boost in production over the last two years. It has seen demand for its natural gas grow in response to global shortages following the Russian invasion of Ukraine and subsequent sanctions on Russian energy. In addition, many countries are relying on gas to move away from dirtier fossil fuels like coal and oil, viewing natural gas as a transition fuel. The U.S. must now establish strong trade routes to ensure it can deliver its LNG to various locations worldwide. 

Growing Demand for Gas 

One major market the U.S. is trying to break is Asia. But, to achieve this, it will need to develop an efficient link between North America and Asia. The U.S. is now planning to create a shortcut between the two continents by way of Mexico. The route is expected to reduce travel time by around half by transporting gas to a shipping terminal on the Mexican Pacific Coast, allowing it to bypass the highly congested Panama Canal – which has been facing a drought in recent months. 

The project reflects the current global approach to energy, with many countries continuing to see fossil fuels – at the very least natural gas – as key to energy security in the coming decades. While several countries are pursuing a green transition by increasing their renewable energy capacity and decarbonizing their economies, most continue to rely heavily on gas to meet consumer demand. In recent years, the U.S. has grown to become the world’s biggest gas producer and exporter, with a significant project pipeline expected to boost its supplies even further. In addition, a growing global population, a shift away from oil and coal, and the industrialization of the southern hemisphere have pushed up the global demand for gas. 

Development Plans in Mexico 

Mexico’s Energía Costa Azul gas terminal was originally constructed to transport gas from Asia to the U.S., via California and Arizona. Now, with the growth of the fracking industry, the U.S. hopes to reverse this trade route, supported by a $2-billion investment in transforming the facility. This is one of five gas export facilities planned for the west coast of Mexico. If all five export terminals are approved and built it could make Mexico the fourth-largest exporter of gas in the world. 

However, environmentalists are concerned about the impact the proposed fossil fuel projects could have on Mexico’s biodiversity. Fernando Ochoa, the manager of the Northwest Environmental Defense, explained, “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.” Further, as the planned terminals would be U.S.-owned, it would contribute to the further expansion of America’s already immense gas industry – which has already faced severe criticism in recent months for being at odds with the country’s ambitious climate policies. 

Mexico’s president Andres Manuel Lopez Obrador (known as AMLO) has come under fire since his inauguration in 2018 for pursuing fossil fuel projects at the expense of a green transition. Although Mexico has excellent conditions for a wide range of renewable energy projects, AMLO has favored the expansion of the country’s oil and gas industry, pumping funds into the construction of new refineries and continuing to support Mexico’s debt-ridden oil company Pemex. In addition, the Biden administration just recently accused AMLO of undermining the regional USMCA free trade agreement by introducing overly protectionist energy policies, thereby restricting foreign investment in the sector. This makes the planned LNG developments between the two countries somewhat surprising. 

Will LNG Pause Hinder U.S. Gas Production and Exports?

The development of the U.S.-Mexico-Asia gas trade route and industrial expansion largely depends on what happens following the recent pause on the gas project pipeline by the Biden administration. In January, Biden paused a decision on whether to approve a project that would develop the largest natural gas export terminal in the United States. The pause is expected to last for several months, potentially going beyond the November presidential election date. It could create major delays for that project as well as several others. Project approval now depends on the findings of the U.S. Department of Energy (DoE), which has been asked to evaluate the gas project in terms of its impact on climate change, the economy, and national security. 

The DoE has not previously rejected any natural gas project on these grounds, however, the government’s support for a green transition – supported by far-reaching climate policies and environmental pledges – could change this. The U.S. has already faced criticism from environmentalists who view the country’s LNG project pipeline as being at odds with its climate aims. As the world’s biggest gas producer, many question whether the added capacity will lead to an oversupply of gas as the world rapidly increases its renewable energy capacity. 

The announcement of a new LNG link from the U.S. to Asia alongside news that a major U.S. natural gas project will be paused (pending environmental assessment) has confused the world’s gas market. Many are calling the U.S. plans for natural gas into question, with EU representatives voicing concerns about potential shortages in the coming years if the U.S. project pipeline does not go ahead. However, environmentalists worldwide are hailing the pause on the development of a major new gas terminal as a positive move that could encourage other countries to rethink their stance on natural gas.

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Felicity Bradstock is a freelance writer specializing in Energy and Industry. She has a Master’s in International Development from the University of Birmingham, UK, and is now based in Mexico City.

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