Mexico's LNG export future seen hanging on results of US election

The results of the US presidential election in November could determine the future of around 25Mt/y of liquefied natural gas (LNG) export projects on Mexico's Pacific coast, according to energy consultants.

If Donald Trump is elected, the US Department of Energy (DOE) is expected to facilitate the permitting process for LNG projects.

Kamala Harris would likely continue with the Biden administration's hostility to LNG exports. She may make it even harder for Mexican projects to obtain or extend the export permits they need.

"In a Trump presidency, I think you would see the DOE rubberstamping any liquefaction project that comes across its desk, which would include the Mexican projects," Schreiner Parker, managing director for Latin America at Rystad Energy, told BNamericas.

"You could absolutely see the 25Mt/y coming to fruition on the Pacific coast and more construction happening on the Gulf coast."

"Under a Harris presidency, some of the planned capacity on the Pacific coast in Mexico may not get approval, or if it does get approval, the process will be longer and more arduous."

In a research note, analysts at Wood Mackenzie said that LNG permitting at the DOE and the Federal Energy Regulatory Commission (FERC) is likely to speed up under Trump.

"If Harris wins, on the other hand, it’s more likely an extended permitting process could be changed to include more challenging criteria and rules."

Permitting pause

The developers of Mexican LNG projects plan to import cheap natural gas by pipeline from US shale reserves and liquefy it for shipping to energy-hungry markets in Asia.

Because they are using natural gas from the US, the projects need export permits from the DOE.

In January, partly on environmental grounds, the Biden administration paused permitting for LNG exports to countries with which the US does not have a free trade agreement. That covers many of the markets targeted by the Mexican projects.

The decision has spooked investors, delayed final investment decisions and cast a cloud over Mexico's LNG export ambitions.

Just one of the projects on the Pacific coast is currently under construction. The 3Mt/y Energia Costa Azul plant in Baja California, developed by US energy firm Sempra, is set to begin operations in 2026 after an investment of US$2bn.

None of the other projects has yet received a final investment decision, including the US$15bn Saguaro Energia plant under development by Mexico Pacific, which is controlled by Houston-based private equity firm Quantum.

Sempra has not decided whether to go ahead with two other projects in Mexico, including a12Mt/y expansion of Energía Costa Azul and the 3.5Mt/y Vista Pacífico proposal further down the coast in the state of Sinaloa.

Feedstock fears

Longer-term concerns over feedstock supply are also hanging over Mexico's LNG export plans. 

Mexico's own natural gas output is decreasing. It meets 70-80% of its gas demand with imports from the US, mainly from shale reserves. 

This growing reliance on the US for natural gas exposes Mexico to the risk of supply disruptions and changes of policy in the US.

Kamala Harris has previously suggested banning fracking and a ban has some support in her party.

"In a world where fracking is either curtailed or banned, then you can imagine very quickly that the US would stop being an exporter of natural gas," Rystad Energy's Parker said.

"I don't think that Harris will ban fracking but it may not have to be Harris. The Mexican liquefaction projects are exposed to an inordinate amount of exogenous risk because of the dependency on importing US natural gas."