America’s trade pact partners take advantage of White House freeze on new permits to compete on gas exports
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Financial Times
Alexandra White in New York and Shotaro Tani in London
Published Sep 16, 2024 • Last updated 2 hours ago • 4 minute read
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The booming investment in LNG in Canada and Mexico comes amid a slowdown in new developments being announced in the U.S. Photo by LNG CanadaArticle content
Canada and Mexico are drawing tens of billions of dollars of investment to kick-start their liquefied natural gas export industries as a permitting freeze slows the expansion of the sector in the United States, the world’s biggest supplier.
Roughly US$63 billion of capital investment is poised to pour into the sector in the two countries, according to consultancy Rystad Energy AS, including projects under construction and those awaiting final investment decisions.
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“(Customers) want alternative suppliers,” Kenny Stein, vice-president of policy at the Institute for Energy Research, said. “They are happy to have more supply on the market from non-U.S. suppliers.”
The booming investment in LNG in Canada and Mexico comes amid a slowdown in new developments being announced in the U.S. Investment has been hit by uncertainty following a moratorium on new export permits introduced by the Joe Biden administration as it assesses the benefits and pitfalls of surging gas exports.
The U.S.’s neighbours are aiming to tap burgeoning demand for the fuel in the Asian market that will heat up LNG export competition in North America.
Most planned developments in Canada and Mexico are located on the countries’ west coasts, meaning vessels carrying LNG will not have to pass through the Panama Canal, which is increasingly becoming a chokepoint in global LNG trade. That would give them easier and potentially cheaper access to the Asian markets that are forecast by the industry to drive growth.
Consultancy Wood Mackenzie Ltd. estimates that Canada and Mexico have the potential to supply 36.2 million tonnes a year and 36.7 million tonnes a year of LNG, respectively, by 2040. That is up from 0.49 million tonnes a year of LNG in Mexico and zero in Canada this year.
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However, Canadian and Mexican LNG supply is still forecast to be dwarfed by the 325.83 million tonnes a year the U.S. has the potential to supply by then. Last year, the U.S. exported 88 million tonnes.
Canada is expected to export LNG for the first time next year from a Shell PLC-backed project in British Columbia.
LNG Canada, which is forecast to have a capacity of 14 million tonnes a year, is more than 90 per cent complete and is on track to ship first cargoes by the middle of 2025, said Shell, which has a 40 per cent stake in the project.
The project’s first phase will be the country’s largest project and one of many investments in the LNG export industry along North America’s Pacific coast. Wood Mackenzie estimates it will supply 13.5 million tonnes in 2027 and will be a new source of supply to Asia.
“Canada is going to be the song on the dance floor for the next couple of years as new projects come online,” Mark Bononi, an analyst at Wood Mackenzie, said.
The two remaining projects under construction in Canada — Woodfibre LNG and Cedar LNG — are estimated to add 5.4 million tonnes a year by 2030, on top of the nearly 14 million tonnes a year from LNG Canada by 2030, according to Wood Mackenzie.
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Similarly, Mexico has begun building its own export industry along the west coast as it targets increasing demand in Asia. Last month, New Fortress Energy Inc., the developer of the first LNG export facility in Mexico, shipped an initial cargo along the east coast.
Mexico has four proposed projects along the west coast that are estimated to have the potential to supply 23.06 million tonnes a year of LNG by 2030, according to Wood Mackenzie. Only one project, Sempra’s Energia Costa Azul LNG, is under construction.
But both countries’ fledgling LNG industries face hurdles. Canada does not have an operating LNG export facility and some projects have faced years of delays. LNG Canada was first announced nearly 14 years ago, but as U.S. projects raced ahead, Canada lagged behind.
“Canada had a lost decade on LNG because it couldn’t get anything permitted,” said Greg Ebel, chief executive of Enbridge Inc., which has a 30 per cent stake in the Woodfibre LNG project. “It still represents a challenge for us to get over in Canada.”
Similar to the U.S., Canada also faces a challenging regulatory environment. Many projects have been delayed because of permitting and the setbacks have driven up costs.
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“The environmental approval process takes much longer than it takes for a project of a similar size in the U.S.,” Kaushal Ramesh, head of LNG analytics at Rystad Energy, said.
Mexican projects face the challenge that most will have to source their natural gas from the U.S. Permian Basin and are subject to U.S. energy law, making them subject to Washington’s permitting freeze.
The country’s largest project, Mexico Pacific Ltd. LLC’s Saguaro Energia, has yet to begin construction or receive a final investment decision. Although it has been permitted by the U.S. Department of Energy, it has a deadline to begin exporting LNG by December 2025.
“We do think west coast Mexican LNG is going to be more (competitive in) cost than U.S. Gulf Coast,” Ramesh said, adding that Mexico has not had a history of long delays in project approvals, does not have expensive infrastructure and is closer to the Asian market.
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U.S.-based Sempra’s export terminal Energia Costa Azul LNG, which is under construction, is facing delays and cost increases because of labour and productivity challenges.
“Like the U.S., there’s going to be a new administration in Mexico starting in October,” Wood Mackenzie’s Bononi said. “That causes some uncertainty for the industry over the new administration’s policy priorities.”
© 2024 The Financial Times Ltd.
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