Mexico’s nascent LNG market could be impacted by the decision of U.S. authorities to pause export licenses as they review methodology and guidelines.
The liquefied natural gas export projects planned in Mexico, which amount to as much as 6 Bcf/d, would use U.S. natural gas as feed stock. As such, they require U.S. Department of Energy (DOE) approval for exports to nations that lack free-trade agreements (FTA) with the United States.
NGI’s Mexico GPI spoke to LNG developers and participants in the natural gas market to get a sense of potential ramifications. The projects most obviously impacted have yet to receive DOE permits. However, even Mexico LNG projects that have U.S. authorizations could be forced to speed up plans or face reapplying for permits under unknown guidelines.
New Fortress Energy Inc.’s Altamira LNG project does not yet have DOE authorization for exports to non-FTA nations.
Altamira’s first phase consists of two 1.4 million metric tons/year (mmty) trains offshore Tamaulipas hoisted on jack-up rigs. The marketing arm of Mexico’s Comisión Federal de Electricidad (CFE), CFEnergía, would supply feed gas for the units from the Agua Dulce hub in South Texas via the Valley Crossing pipeline. CFE would transport those volumes on the Sur de Texas-Tuxpan pipeline.
The project is more than 95% complete and commissioning is imminent.
U.S. Customs and Border Protection issued a ruling that the transportation of LNG produced offshore Altamira by non-U.S. qualified vessels would not violate the Jones Act. This could mean that the facility could ship natural gas to Puerto Rico or potentially even the U.S. Northeast, which lacks pipeline capacity to meet areas of high demand.
Broader Ramifications
Mexico Pacific Ltd. LLC has a non-FTA DOE permit, but there are other pieces of the puzzle that need to be in place, including new pipelines. It is unclear how the permitting pause impacts pipeline export projects. Moreover, Mexico Pacific’s export permit runs out at the end of next year, meaning it would have to apply for an extension with DOE.
The Saguaro Energía LNG export terminal in Puerto Libertad on the Sonoran coast would have a combined capacity of 14.1 mmty, or 1.86 Bcf/d, across three trains.
The Sierra Madre pipeline feeding the plant would run from the U.S. border and traverse the Mexican states of Chihuahua and Sonora. On the U.S. side of the border, Oneok Inc. is awaiting the LNG project’s final investment decision (FID) to proceed with the 2.8 Bcf/d Saguaro Connector pipeline, which would connect the Waha hub in West Texas with Sierra Madre in Mexico.
“Mexico Pacific already holds DOE authorization (FTA and non-FTA),” a spokesperson told NGI. “We remain on track, and committed, to taking a near-term train one and two FID with train three to follow shortly.
“As an LNG project located in Mexico, Saguaro Energía is uniquely positioned to offer diversified and lower-cost LNG from North America, free of Panama Canal congestion and other uncertainties,” the spokesperson said. “As such, we remain committed to our further growth plans, fully confident we will continue to receive future regulatory approvals for our growth projects.”
The Amigo LNG project in Guaymas, Sonora, being developed by Singapore-based LNG Alliance Ltd. also has DOE authorization. LNG Alliance CEO Muthu Chezhian told NGI’s Mexico GPI the Biden administration’s decision to pause new permits would not impact the project for now.
Amigo LNG has authorization for a terminal with 7.8 mmty of capacity across two trains.
“We are not impacted. That’s good news,” Chezhian said. “Sometimes it’s good not to be No. 1 in the race. Thankfully, we applied pretty late. We got our permits in December 2020, so our authorization to commence is valid until December 2027, which gives us an export window until 2047.”
Perhaps best positioned is Sempra’s Vista Pacífico project in Topolobampo, Sinaloa, which has a valid DOE permit until late 2029. In late 2022, DOE approved Sempra’s request to export 200 Bcf/y to non-FTA countries from Visa Pacifico.
Meanwhile, Sempra’s 3 mmty first phase of Energía Costa Azul is currently under construction in Baja California with exports set for next year.
Reputational Impact?
Chezhian of Amigo said the permitting pause “is sending shockwaves in Asian markets.” He added, “It will have a broader geopolitical impact.”
Others have suggested a potential reputational knock on North American LNG.
“Japan, the world's second largest LNG importer, already has expressed some concern about Biden's temporary moratorium, and I certainly expect this will lead to additional inquiries about Mexican LNG exports,” NGI research director Patrick Rau said. “Saguaro LNG is getting close to reaching FID, but there likely won't be a rush to finalize other projects in Mexico until after the elections.”
Presidential elections are scheduled in June for Mexico and in November for the United States. Market participants suggested to NGI they expect the pause to hold until at least until 2025.
“During this period, we will take a hard look at the impacts of LNG exports on energy costs, America’s energy security, and our environment,” President Biden said last week. “This pause on new LNG approvals sees the climate crisis for what it is: the existential threat of our time.”
DOE Secretary Jennifer Granholm said the pause was temporary, but DOE has not provided a timeline for how long authorizations may be curtailed.
“Asia's main goal is energy security,” Rau said. “Most, if not all LNG exported from Mexico, would come from the U.S., and routing gas through Mexico introduces an extra element of risk importers may otherwise seek to avoid. These are long-term contracts, some as many as 20 years, so a few extra quarters won't necessarily kill the attractiveness of these projects.
“But if after December it's clear that the U.S. is still anti-LNG exports, and/or if the new president of Mexico is less enthusiastic about LNG exports than Mexico President Andrés López Obrador, that would likely force LNG importers into securing supply from other parts of the world.”
At least 17 facilities have pending authorizations on DOE’s backlog. Rapidan Energy Group’s Alex Munton told NGI that the moratorium would likely impact the development of 10 North American projects expected to be fed with U.S. gas, representing almost 20 Bcf/d of additional export capacity.
