Go West, Part 2 - Mexico's Pacific Coast LNG Export Projects Gain Traction

For years, industry experts warned that the global LNG market was entering a period of extreme oversupply that would last until mid-decade. And up until late last year, that bearish scenario seemed to be materializing. Global gas prices had fallen as more LNG export capacity came online, and then COVID-19 decimated global markets and caused existing LNG terminals to shut-in production. But just as quickly as it collapsed, the market flipped. The world is now left scrambling to secure LNG/gas supply ahead of the heating season and global gas prices have hit record highs in recent weeks, signaling a turbulent winter ahead. Suffice it to say, utilities and governments have energy security and reliability on the mind, not just for prompt winter but for the longer term, and that pressure is unlikely to let up anytime soon. That’s brought previously commitment-wary LNG offtakers back to the negotiation table for new LNG export developments — cautiously and with a sharpened focus on de-risking long-term commitments amid heightened uncertainty. One way to do just that is to capitalize on the economic advantages of North America’s Pacific Coast projects. In today’s RBN blog, we continue our series looking at the state of LNG development on the North American Pacific Coast.

In Part 1 of this series, we looked at how the proximity of the Pacific Coast to Asian markets reduces the shipping costs for LNG exports compared with projects on the U.S. Gulf Coast. Exact shipping times depend on where the cargoes are loaded and delivered, ship speeds and the route taken, but in general exporting from the Pacific Coast, as opposed to the Gulf Coast, cuts the voyage time in half, saving over $1/MMBtu in shipping-associated costs, including vessel fees and bunker fuel. Additionally, there are no canals to pass through on the route from the Pacific, providing additional savings on canal fees and also potentially on voyage times by avoiding the possibility of congestion at the Panama Canal, which is a growing concern for the industry as exports continue to increase. With these huge costs and logistical advantages on the shipping front, it’s easy to see what’s attracting LNG developers and offtakers alike to the Pacific Coast. For now, LNG development on the U.S. West Coast is off the table because of the regulatory environment. The only project previously under consideration, Jordan Cove in Oregon, was placed on hold, most likely permanently, earlier this year after unfavorable rulings on a years-long fight for state and local permits. However, that still leaves projects in Mexico and Canada that are able and planning to capitalize on the demand for Pacific Coast-based export capacity.