US gas producers rush to sell to Asia. And Mexico is the key.

Next year, the U.S. fossil fuel industry will gain its first foothold in a valuable shortcut to selling natural gas to Asia. The shortcut goes straight through Mexico.

The new route could roughly halve travel times to energy-hungry Asian countries by funneling gas to a shipping terminal on Mexico's Pacific coast, bypassing the traffic- and drought-choked Panama Canal.

The terminal symbolizes a huge shift underway in the gas trade, one that will impact the use of fossil fuels worldwide for decades and have consequences in the fight against climate change.

The American fracking boom has transformed the United States into the world's largest gas producer and exporter. At the same time, the rest of the world has started using more and more gas – in power plants, factories and homes – partly to move away from climate-polluting fuels such as coal and oil. Demand is growing especially in China, India and the rapidly industrializing Southeast Asian countries.

In Mexico, the action is currently focused on a gas terminal, Energía Costa Azul, which was originally designed to send gas in the other direction: for more than a decade it has been loading gas from Asian tankers and passing it on to California and Arizona. are burned to produce electricity.

Fracking changed everything. Now Costa Azul, wedged between the agave-covered mountains of Baja California and the vast Pacific Ocean, is undergoing a $2 billion transformation into an export facility for American-produced gas. It is the first in a network of gas export facilities along the west coast of Mexico.

Rising production in the United States, especially in the Permian Basin of West Texas, combined with the world's growing appetite, has raised concerns that gas use will slow the world's transition to cleaner energy sources, such as solar and wind. , which do not produce the necessary energy, could slow down. greenhouse gases that cause climate change. Last month, the Biden administration paused the approval process for new export terminal projects in the US while considering the effects of gas on global warming.

The pause also affects several proposed Mexican projects because they would export U.S. gas, but not Costa Azul, which already has approval and is largely complete. Sempra, the company building Costa Azul, declined to comment.

If all five planned terminals in Mexico were eventually built and operated at the proposed volumes, Mexico would become the world's fourth largest exporter of gas. Each terminal would theoretically remain active for decades.

That has alarmed activists concerned not only about climate change, but also about potential pipeline spills and increased shipping traffic in the Gulf of California, which is so biodiverse it's sometimes called “the Aquarium of the World.”

“Implementing these export projects would mean not only a large amount of carbon and methane emissions, but also the industrialization of a pristine ecosystem,” said Fernando Ochoa, head of Northwest Environmental Defense, a nonprofit organization focused on the region.

In addition to Mexico being closer to Texas gas fields than California, less stringent environmental regulations and cheaper construction costs are among the reasons these export terminals are proposed there instead of on the U.S. West Coast. But analysts say these terminals are essentially American terminals: they are largely owned, operated and supplied by American gas companies.

“Every expansion in Mexico amounts to an expansion in the U.S.,” said Gregor Clark, who researches energy projects across the Americas for Global Energy Monitor. The United States has seven active export terminals and five more under construction, and export volumes alone are expected to double within the next four years.

Until recently, tankers could get through the Panama Canal relatively quickly and travel times from the export terminals on the Gulf of Mexico to Asia were reasonable. But the drought in Panama has severely limited the number of ships passing through the canal every day.

Gas is touted by the fossil fuel industry as cleaner to burn than oil or coal. But recent studies have questioned its climate friendliness, especially in situations where it is transported over longer distances around the world, consuming more energy in shipping. Moreover, the process of liquefying gas to make it suitable for transport is extremely energy intensive.

The Mexican government did not respond to a request for comment or publicly respond to President Biden's directive.

State and federal officials in Mexico have touted the proposed export terminals as job creators, but debate over their climate-related merits has received little attention in the campaigns leading up to the country's presidential election in June. Frontrunner Claudia Sheinbaum, former mayor of Mexico City, is a well-known environmental activist.

Figures on expected gas demand in Asia have drawn investors from around the world to the Gulf Coast in recent years. Proposals for new export terminals have increased rapidly. Long before the shovels go into the ground, the gas that would be exported from them has already been contractually committed for deliveries for decades.

Muthu Chezhian, the CEO of LNG Alliance, a Singaporean company behind a plan to build an export terminal in the Mexican state of Sonora, said Biden's directive had made potential Asian buyers nervous. Previously, they had been palpably excited about the project and had felt reassured by nearly a decade of reliable gas expansion in the United States.

“It has sent shockwaves through Asian demand markets,” he said recently. “I got a call from China this morning and I didn't have a clear answer as to what this could mean for some aspects of our project.”

His project already has approval from the Department of Energy, meaning there is a good chance it will still be built.

Unless the investors get scared and withdraw.

Or unless it can't meet the 2028 deadline to start work. If you miss that deadline, you will need to request an extension from the Department of Energy. But Biden has also halted the extensions.

The largest proposed export terminal along the Gulf of California, called Mexico Pacific, faces much bigger opportunities. It would be approximately 10 times the size of Costa Azul if all proposed phases were built. But while it also has approval from the Department of Energy, the deadline to start exporting is next year. Because construction will take years and has not yet begun, analysts said the project would almost certainly have to request an extension.

“Costa Azul will maintain dependence on fossil fuels for a period of 20 to 30 years,” Mr Clark said. “But Mexico Pacific would be huge by world standards.” If all of the proposed phases were built, it would be even larger than the largest proposed project in the U.S. territory, Venture Global's CP2 project.

Mexico Pacific did not respond to a request for comment on the status of the project.

Environmentalists like Mr. Ochoa see its delay and possible demise as a major and unexpected victory. “Biden's move is a game changer,” he said. “If we look at the big picture and understand that delays are the biggest enemies of these projects, and that investments require certainty, this will certainly be detrimental to them.”

The ripple effects on the global gas market created by President Biden's directive are still being felt, analysts said, and it remains unclear how long the pause will remain in effect. The question of who will win the American presidential elections in November also hangs over the market.

But in an industry that often sells its product decades in advance through long-term contracts, investors are likely to look at U.S. competitors in the gas market as well as current operators in the United States and Mexico with room for growth.

“Other major producers like Qatar and Australia can win now,” said Emily McClain, vice president of gas market research at Rystad Energy. “And within the US and Mexico, any projects that have received approval and do not require an extension will see a surge of interest, as the others will likely be delayed by at least a year.”