Etam: Mexico is Leapfrogging Canada in the LNG Export Race

From the BOE Report

The U.S. border with Mexico has a sadly cliched aura hanging over it. U.S. citizens head south for shopping, dental work, and other bargains (mild-adventure-seeking tourist buddies have even wandered south from Tucson to Nogales to purchase nothing more than a haircut (and once was enough)). 

The other way’s cliches are the long string of desperate people looking for a better life north of the border, sneaking across at night or under dangerous conditions.

But times they are a changin’. I’m not sure what the Spanish phrase is for “What the…” but I’m sure it’s heard often these days as a significant number of Americans head south across the border in search of a better life, while at the same time Mexicans are getting used to a very loud hiss as billions of cubic feet of natural gas head also south into Mexico – far more, in fact, than the country actually needs. 

Weird change is in the air, and if it works out as it looks like it might, that hiss of flowing gas is going to create mountains of cash for Mexico, cash that will have nothing whatsoever to do with drugs (it’s cliche week!). It’s something better.

Gas flowing into Mexico is nothing new, but here’s what is – companies may soon be able to get Canadian natural gas onto an LNG carrier easier, quicker, and cheaper via Mexico than through Canada (if not the exact molecule, a very easily connected/traded one).

What’s up with that, you may ask, and that’s a most wise question. The whole idea seems either counterintuitive or just nuts – Mexico is not a gas powerhouse, nor even close to meeting its own needs. According to the best book ever, BP’s 2022 Statistical Review of World Energy, in 2021 Mexico produced 29 billion cubic metres (bcm) of natural gas,, and consumed 88 bcm – a shortfall of nearly 60 bcm (~6 bcf/d).

Mexico, as of last year, was quite keen on importing U.S. natural gas simply to feed domestic needs. A September 2021 article on the LNG Industry site noted that Mexico “has been preparing additional pipeline capacity for imported natural gas to ensure industrial demand is met.”

Apparently, the clever Mexicans were thinking far beyond that. As documented in this March 2022 article, Mexico currently has 12 LNG export projects in early stages, with five under construction. 

Hmm. In 2021, Canada produced 172 bcm, and consumed 119 bcm  – excess production of 53 bcm per year, which has to be exported. No surprise there – Canada has been a natural gas exporter for decades.

But…Mexico is going to be an LNG exporter sooner than Canada, and will have bigger export volumes within 5 years?

Yep.

Mexicans may have only experienced Canadians as great big white drunken blobs in swimming suits wandering from buffet to bar to pool in an ever-wobblier triangle until they fall over in a reddened heap, but perhaps that performance gave them the confidence to speed ahead of the hosers in developing an LNG export industry. They’ve looked north at relatively glutted markets, at Canada and U.S. obstinacy in building natural gas infrastructure (Canada has chased away about 15 proposed LNG facilities, and the U.S. famously has the world’s largest gas field (Appalachia) that is unable to get its vast production to a gas-starved U.S. east coast a scant hundred miles away – all due to pipeline blocking antics from anti-hydrocarbon governments and their ENGO Naginis (ask Harry Potter)). Mexico has looked at its coasts, both of them, and at the array of gas pipelines coming their way over the U.S. border, and said, “Hey, we could do that.”

The Mexican LNG projects utilize the web of gas pipelines bringing feedstock over the border from the U.S., in particular, the Permian and west – regions that Canadian gas can now access through the web of pipes stretching north into Canada.

The five Mexican projects under construction will export well over 2 billion cubic feet per day (bcf/d) and are slated to come on line between 2024 and 2027. As with dental work and drinks and haircuts, things are much cheaper in Mexico – the five projects under construction will cost a fraction of Canada’s plodding beasts. One Mexican LNG hub announced in Sept 2022, capable of exporting almost 1 bcf/d, will cost $4-5 billion.

TC Energy announced that a pipeline to connect two ports in the region to gas supplies further north will cost about $4.5 billion, so less than $10 billion for a terminal and a pipeline to feed several others.

Canada’s sole large project underway – LNG Canada, with the Coastal GasLink connecter – is slated to cost about $40 billion. (LNG Canada will come on in several stages with the first pegged at $18.5 billion, and Coastal GasLink’s recently upped the cost of the connector pipeline to $11.5 billion.)

Those kind of eye-watering costs are what happens in a regulatory quagmire that would sooner see Canadian hydrocarbons dead than heating the world, and/or when natural gas pipeline constructors have to spend night shifts dodging flying axes and dealing with the aftermath of Hollywood celebrities enlisted to muddy the waters in their adorably ignorant way.

Note also the timelines – Mexico is bringing forward an entirely new industry within a few years, and will be exporting significant LNG in the 2025-27 timeframe. 

Canada will be exporting less than Mexico by then, on projects that were first unveiled more than a dozen years ago (Coastal GasLink and LNG Canada).

In 2020, the federal government catalogued 18 LNG export facilities proposed for Canada. By 2027, Canada will have two or three online, if all goes well, and Mexico looks to have double that, with more than double the volume.

In a further and sizeable irony, those Mexican export terminals could actually be shipping Canadian gas, as the interconnectivity between Canada and Mexico will be there, in fact, much will be owned/operated by a Canadian company (TC Energy).

Canadian producers are actively looking to ship gas to the southern U.S. in hopes of getting it on an LNG ship of any sort. It would be ironic if the gas can get to sea quicker via Mexico, but the joke is entirely on Canada – it is the fleet-footed Mexicans that will reap the benefits of massive global LNG prices (for a shocking estimation of what Canadian governments are leaving on the table – as a governmental haul alone, some $2.8 billion per month, see here).

It would be off base to think of this diatribe as channeling support solely for the LNG industry, although that is a considerable component – the world is desperate for LNG, and many will die without it. But in addition, the tale is worth thinking about in the context of Canada being able to build anything. 

How long would a new mine take, when we are pledging to the world that we’ll be cranking out valuable transition minerals? How long would it take to build major new power transmission infrastructure, or, heaven forbid, a new pipeline of some sort?

How many layers of regulation exist, including the byzantine new layers of “environmental” (not) regulations whereby governments can shoot down anything if it goes against their “climate ambitions”, which are arbitrary numbers pulled out of thin air for press conferences? (The U.S. suffers a similar problem, and Europe did as well, until reality bulldozed all the nonsense into a giant coal-fired boiler).

But let’s put aside the relatively petty rivalry of whoever is getting gas to market first. Let’s look at the bigger picture, where the challenge can be summarized concisely as: The world is short of energy, leading to dangerously rising prices (oil, natural gas, and coal) and rampant inflation. The problem can be rectified in two ways: one, prices rise high enough to bring down demand, which will be a global catastrophe – factories will close, output of critical materials will suffer, jobs will be lost, and inflation will drive up the price of every staple of human existence.

The other way the problem can be rectified is to provide more energy to the world – build out pipelines, stop trying to kill the hydrocarbon industry, bring stable regulations that support both environmental progress and stability of supply.

Germany came begging Canada for LNG, and when we refused to get them any, the Germans headed to Mexico and found a more constructive audience. Many countries want LNG as badly (or worse) than Germany, but don’t have the wherewithal to finance the infrastructure or to even bid competitively for the gas itself. We don’t even want to think about what physical shortages, never mind outrageous prices, of natural gas will mean to developing countries.

As the general audience, we have a choice also: Pander to climate catastrophists, worried about 30 years down the road instead of next year, and agree that hydrocarbons need to go, or stand up for the developing world that will perish if that process is allowed to gain traction. 

A great gift to put under the tree, or under the Thanksgiving turkey, American friends. Pick up “The End of Fossil Fuel Insanity” at Amazon.ca, Indigo.ca, or Amazon.com.  Thanks for the support. If you don’t buy the book, send some money to the good people of Ukraine and Iran who really need it. But one us for sure. Or both. Up to you. No pressure.

Read more insightful analysis from Terry Etam here, or email Terry here.