Mexico is poised to catch the next wave of demand for liquefied natural gas and surpass Canada in the global race to be a new entrant for exporting the fuel.
Momentum for LNG exports from Mexico increased after Europe experienced an energy crunch that was triggered by Russia’s invasion of Ukraine in February, 2022.
While Mexico’s exports would start out relatively modest, it is on track to handily beat Canada.
How the U.S. became a global leader in LNG – and why Canada has fallen behind
Analysts forecast that the United States will be the top LNG exporterin 2023, followed by either Australia or Qatar. If most of the Mexican LNG projects and proposals get built, Mexico could eventually become the world’s fourth-largest exporter of the fuel.
Canada recently ranked the world’s sixth-largest producer of natural gas, but it doesn’t have any LNG export terminals yet.
TC Energy Corp. TRP-T +0.27%increase is a key infrastructure player in Mexico. The Calgary-based company already operates seven pipelines in Mexico and has plans for an offshore natural gas line called Southeast Gateway, to be built along the Gulf Coast.
“Mexico has been very focused on developing their natural gas infrastructure because it’s been a key element of their own transition away from higher-carbon fuels,” said Jennifer Pierce, president of TC Energy’s TC Energia business unit in Mexico.
Last August, Mexico’s state-owned electrical utility, Comision Federal de Electricidad (CFE), disclosed plans to collaborate with TC Energy for the US$4.5-billion Southeast Gateway pipeline project within Mexico. An important goal of the project is to secure U.S. natural gas for Mexican electricity generation.
Mexico imports the vast majority of its natural gas through pipelines originating in the United States.
“This is the precursor for Mexico’s energy transition,” Ms. Pierce said in an interview from Mexico City. “They have a tremendous renewable capability, particularly in the area of solar.”
CFE has an ambitious vision for exporting LNG from the Mexican state of Veracruz. Southeast Gateway’s 715-kilometre route could deliver additional supplies to the port city of Coatzacoalcos in Veracruz, for supercooling natural gas into liquid form.
In effect, Mexico is keen to tap further into U.S. reserves, notably in the prolific Permian Basin in Texas and New Mexico.
By contrast, Canada has faced major challenges to export LNG. It has been hamstrung by the high costs to expand pipeline capacity, especially on the East Coast, where lofty LNG plans fizzled earlier this year. Ottawa said last summer that LNG proponents in New Brunswick and Nova Scotia must stand on their own merits and move forward without federal financing.
Two Canadian-based producers – Tourmaline Oil Corp. TOU-T -1.28%decreaseand ARC Resources Ltd. ARX-T -1.33%decrease– have deals to supply natural gas to Cheniere Energy Inc.’s Corpus Christi LNG export terminal in Texas, though Canada-U. S. pipeline capacity constraints remain.
“Without sufficient pipeline capacity to the U.S. or Eastern Canada, or LNG to international markets, the value of Canadian gas resources will continue to be diminished,” according to a report by Royal Bank of Canada RY-T +0.21%increase.
LNG proposals in British Columbia had a major head start over Mexico, with early-stage planning dating back more than a decade ago in B.C.
Shell PLC-led LNG Canada selected Kitimat, B.C., as its terminal site in 2012. Today, the Kitimat terminal is the only LNG export facility under construction in Canada. The joint venture’s Phase 1 is hoping to start shipping 14 million tonnes a year of the fuel to Asia, beginning in 2025.
LNG Canada’s proposed expansion hinges on economic viability of switching to lower-carbon technology
Proponents of Mexican LNG exports have short timelines for their projects, with one of them leap-frogging ahead of Canada. In August, New Fortress Energy Inc. plans to start exporting LNG from the Altamira project in the Mexican state of Tamaulipas along the Gulf Coast, earmarking deliveries for Europe.
Last year, CFE forged a strategic alliance with New Fortress for the Altamira export hub on the Mexican Gulf Coast, with the first phase situated offshore. New York-based New Fortress is aiming to initially export 1.4 million tonnes a year of LNG to Europe, followed by expansions that could triple the annual export capacity to 4.2 million tonnes by the end of 2024.
Also being lined up is the Lakach floating LNG project near Veracruz.
Natural gas is already imported from the U.S. for electricity generation in Tamaulipas and Veracruz, flowing through the existing Sur de Texas-Tuxpan marine pipeline, which is led by TC Energy.
On Mexico’s West Coast, the first phase of the Energia Costa Azul project, led by San Diego-based Sempra, is under construction. Exports to Asia from that LNG terminal are slated to start in 2025.
The Sempra-led Costa Azul project is initially targeting three million tonnes a year of LNG exports to Asia. The project has ambitious plans for expansion for a second phase that would add 12 million tonnes a year from the site in the Mexican state of Baja California.
Other LNG proposals along Mexico’s western coastline include Mexico Pacific, Vista Pacifico, Amigo and Salina Cruz.
While it’s unclear how many of the plans will forge ahead, there are criticisms about Mexico’s belated but aggressive move into LNG exports. The Institute for Energy Economics and Financial Analysis (IEEFA), a U.S.-based research group, expressed concerns in a March filing to the U.S. Department of Energy’s Office of Fossil Energy and Carbon Management.
IEFFA was responding to an application by Mexico Pacific for increasing its authorized amount of imports of U.S. natural gas.
Seven U.S. LNG export terminals are currently operating and at least another five U.S. facilities, including expansions at three existing sites, are likely to open by 2028.
“The potential for excess supply over demand must be considered,” IEEFA said in its filing.
In addition to IEEFA questioning the economics of expanding LNG exports, environmental groups warn that LNG is a fossil fuel contributing to global emissions of greenhouse gases when the focus should be on renewable energy.
There had been two LNG proposals in Oregon for exporting to Asia, but they failed to gain traction amid community opposition.
In Kitimat, LNG Canada recently received the 199th of 215 modules that were ordered for its Phase 1. The final large modules from the Qingdao fabrication yard in China arrived last month for installation in Kitimat, while smaller units will come from the Zhuhai facility, also located in China.
LNG Canada’s Phase 1 will become the first terminal in Canada dedicated to exporting the commodity on purpose-built LNG vessels.
Shell and the four other co-owners of LNG Canada have not yet decided on whether to approve a Phase 2 expansion.
Teresa Waddington, LNG Canada’s vice-president of corporate relations, said Phase 1 is now more than 80 per cent completed. “We see an opportunity to build on our early Phase 1 successes and the benefits it is providing British Columbians and Canadians,” she said in a statement.
TC Energy owns 35 per cent of the contentious Coastal GasLink pipeline project, which will transport natural gas from northeast B.C. to Kitimat. The 670-kilometre route is 87 per cent completed.
Besides LNG Canada’s potential Phase 2, four other projects for exports using tankers remain active in B.C., including Cedar LNG, which would rely on Coastal GasLink for supplies of natural gas.
About 190 kilometres of the pipeline route cross the Wet’suwet’en Nation’s unceded traditional territory. Wet’suwet’en hereditary chiefs who oppose Coastal GasLink say they have jurisdiction over that territory.
