Canada and Mexico are targeting Asian LNG markets, while US projects have been shelved

Canada and Mexico are attracting tens of billions of dollars in investment to launch their liquefied natural gas export industries as a permit freeze slows the sector’s expansion in the US, the world’s biggest supplier.

About $63 billion of capital investment is about to flow into the sector in the two countries, according to consultancy Rystad Energy, including projects under construction and those awaiting final investment decisions.

“(Customers) want alternative suppliers,” said Kenny Stein, vice president for policy at the Energy Research Institute. “They are happy to have more supply in the market from suppliers outside the US.”

Booming LNG investment in Canada and Mexico comes amid a slowdown in new developments announced in the US. Investments have been hit by uncertainty following a moratorium on new export permits introduced by the Biden administration as it assesses the benefits and pitfalls of increasing gas exports.

The US’s neighbors are aiming to tap into growing demand for the fuel in the Asian market, which will heat up competition to export LNG to North America.

Most of the planned developments in Canada and Mexico are located on the countries’ west coasts, meaning ships carrying LNG will not have to pass through the Panama Canal, which is increasingly becoming a bottleneck in global trade with LNG. This would give them easier and potentially cheaper access to Asian markets, which the industry expects to boost growth.

Wood Mackenzie estimates that Canada and Mexico have the potential to supply 36.2 million tonnes per year and 36.7 million tonnes per year respectively of LNG by 2040. This is up from 0.49 million tonnes per year of LNG in Mexico and zero in Canada this year. . However, LNG supplies from Canada and Mexico are still expected to be short of the 325.83 million tonnes per year the US has the potential to supply by then. Last year, the US exported 88 million tons.

Canada is expected to export LNG for the first time next year from a Shell-backed project in British Columbia.

LNG Canada, expected to have a capacity of 14 million tonnes per year, is more than 90 per cent complete and on track to deliver its first cargoes by mid-2025, said Shell, which owns a 40 % in the project. .

The first phase of the project will be the country’s largest project and one of several investments in the LNG export industry along North America’s Pacific coast. Consultancy Wood Mackenzie estimates it will supply 13.5 million tonnes in 2027 and will be a new source of supply for Asia.

“Canada will be the song on the dance floor over the next few years as new projects come online,” said Mark Bononi, an analyst at Wood Mackenzie.

The two remaining projects under construction in Canada – Woodfibre LNG and Cedar LNG – are expected to add 5.4 million tonnes per year by 2030, on top of LNG Canada’s nearly 14 million tonnes per year by 2030, according to Wood Mackenzie.

Similarly, Mexico has begun to build its own export industry along the west coast as it pursues rising demand in Asia. Last month, New Fortress Energy, the developer of Mexico’s first LNG export facility, 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 per year of LNG by 2030, according to Wood Mackenzie. Only one project, Sempra’s Energia Costa Azul LNG, is under construction.

However, nascent LNG industries in both countries face obstacles. Canada does not have an LNG export facility in operation, and some projects have faced years of delays. LNG Canada was first announced nearly 14 years ago, but as projects in the U.S. continued, Canada lagged behind.

“Canada had a lost decade on LNG because it couldn’t get anything permitted,” said Greg Ebel, chief executive of Enbridge, which owns a 30 percent stake in the Woodfibre LNG project. “It’s still a challenge for us to break through in Canada.”

Similar to the US, Canada also faces a challenging regulatory environment. Many projects have been delayed by permits, and setbacks have driven up costs.

“The environmental approval process takes much longer than it takes for a project of similar size in the US,” said Kaushal Ramesh, head of LNG analysis at Rystad Energy.

Mexican projects face the challenge that most will have to source their natural gas from the US Permian Basin and are subject to US energy law, making them subject to Washington’s permit freeze.

The country’s largest project, Mexico Pacific’s Saguaro Energia, has yet to begin construction or receive a final investment decision. Although it has been permitted by the US Department of Energy, it has a deadline to start exporting LNG by December 2025.

“We think LNG from the West Coast of Mexico will be more cost competitive than the US Gulf Coast,” Ramesh said, adding that Mexico has not had a history of long delays in approving projects, notes that it has expensive infrastructure and it is closer to the Asian market. .

US-based Sempra’s Energia Costa Azul LNG export terminal, which is under construction, is experiencing delays and cost overruns due to labor and productivity challenges.

“Like the US, there will be a new administration in Mexico starting in October,” Wood Mackenzie’s Bononi said. “This causes some uncertainty for the industry about the new administration’s policy priorities.”