LNG Export Uncertainty in the US Sparks Interest in Latin America

The uncertainty surrounding liquefied natural gas (LNG) export projects in the United States could drive investment in liquefaction projects elsewhere, including Latin America, says energy industry service provider Baker Hughes.

The United States is the world's largest LNG exporter, but permit approval processes for new projects have slowed under President Joe Biden, who has pledged to accelerate the transition away from fossil fuels. According to the US Department of Energy, the review times for LNG export licenses have increased to 11 months or more, compared to the seven weeks during the government of former President Donald Trump.

"If we see any slowdown in the United States, it is clear that there are international projects that can take advantage of the opportunity, and we will continue to monitor the situation," says Lorenzo Simonelli, CEO, Baker Hughes. 

Natural gas can be a pivotal transitional fuel in the drive toward decarbonization. There are eight active LNG export projects in Latin America and the Caribbean, requiring a combined capital expenditure of over US$32 billion, according to BNamericas' database. Moreover, Peru and Trinidad and Tobago are the only countries in Latin America and the Caribbean with the necessary infrastructure to liquefy and export natural gas.

Mexico leads with four projects, including three on the Pacific coast, followed by Argentina with two, and Brazil and Suriname with one each. Three of the initiatives are already under construction, three are in the early design or feasibility stages, and two await a construction decision.

Areli Covarrubias, Commercial and Development Director, Sempra Infraestructura, foresees natural gas playing a crucial role in Mexico until 2040-2050, given its environmental advantages. Natural gas, for example, emits nearly 50% less CO2 than coal. However, the recent winter storm in the United States caused disruption in Mexico, showing the risks the latter country faces in achieving energy security due to its dependence on US gas imports. This has prompted a call for increased domestic production through exploration rounds and prioritized pipeline development for enhanced flexibility.

Warren Levy, CEO, Jaguar E&P, highlights the need for an industry plan to secure a less dependent relationship with the US, particularly amid nearshoring opportunities. Moreover, despite Mexico's competitive natural gas prices, uneven distribution and lack of access in the south create social disparities that should be addressed through comprehensive gas pipeline development. 

"The climatic event of 2024 reaffirms the need to enhance national energy security, as official data estimates that about 80% of the national natural gas comes from shale (unconventional) sources produced in the United States," says the Mexican Association of Hydrocarbons Companies (AMEXHI).

The association proposes tapping into the reserves in Mexican fields to increase production in the medium and long term, thereby reducing dependence on US gas. In 2021, similar weather conditions led to restrictions on natural gas exports from the United States to Mexico, causing significant impacts on Mexican families and the economy, says Banxico. 

As of September 2023, Mexico has 19,060km of pipelines, with 10,675km belonging to CENAGAS and 8,385km to private entities. The states with the most points to import gas are Tamaulipas, Sonora, Chihuahua, Baja California, Coahuila, and Nuevo Leon. According to SENER, there are three LNG storage and regasification terminals in the country: Altamira, with a natural gas discharge capacity of 760MMcf/d; Manzanillo, with 500MMcf/d; and Ensenada, with a capacity of 1,000MMcf/d.

Energy policy plays a crucial role in developing natural gas infrastructure. A clear and coherent policy is needed to encourage investment and innovation. Overcoming regulatory and political obstacles requires a proactive approach to facilitate infrastructure growth and modernization. Nevertheless, the current energy policy represents a challenge, as the government tries to strengthen PEMEX and CFE while reversing the participation of private companies in the market.