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The Biden administration’s pause on new LNG export permits has created a market opportunity for Canada, Mexico, and Argentina to increase their LNG exports to Asia.
These countries are investing billions of dollars in LNG export infrastructure, particularly on their Pacific coasts, to gain a logistical advantage over U.S. exporters.
The increased LNG exports from these countries could help Asian buyers reduce their reliance on coal and achieve their climate goals, but the U.S. may lose market share in the long term.
Canada and Mexico are rushing to fill the natural gas vacuum left by the United States’ ongoing moratorium on new liquefied natural gas (LNG) export permits introduced by the Biden Administration in January of this year. The country’s neighbors to the north and south are speeding up their own export capacities to the tune of tens of billions of dollars to capitalize on the newfound market opportunity to provide natural gas to Asian buyers as the world’s biggest LNG exporter takes a break.
On January 26th, President Biden announced that it would pause approvals of new licenses to export LNG so that the U.S. Department of Energy could take time to review and assess whether the nation’s considerable LNG exports are “undermining domestic energy security, raising consumer costs and damaging the environment.”
Canada, for its part, wasted no time at all rushing to fill the sizeable gap left by the United States. According to figures from Rystad Energy AS, Mexico and Canada have around US$63 billion of capital investment lined up to supercharge their respective LNG export capacities. “(Customers) want alternative suppliers,” Kenny Stein, vice president of policy at the Institute for Energy Research, recently told the Financial Times. “They are happy to have more supply on the market from non-U.S. suppliers.”
From a climate perspective, increasing LNG exports from Canada and Mexico are an extremely welcome addition to global markets, particularly for Asian buyers – although they alone will not be able to provide the volumes of LNG needed to wean Asia off of coal. “Massive volumes of coal must be displaced through the 2030s and beyond across emerging Asia to achieve the region’s net-zero aspirations. This inevitably will mean substantial gas imports,” Nikkei Asia reported earlier this year. “As the sole realistic coal alternative in terms of affordability and energy density, LNG from the U.S. offers a much cleaner option for always-available power generation that, in partnership with renewables, can meet growing energy demand while facilitating climate progress,” the report continues.
Despite their relatively smaller export capacities, Canada and Mexico could have critical strategic advantages over U.S. suppliers that allow them to export LNG to Asian markets more efficiently. The two countries are planning to significantly build out their LNG export infrastructure on their Pacific coasts, allowing them to avoid transporting LNG through the Panama Canal. This could give Canada and Mexico a key edge in LNG markets, as the Canal has become a global choke point for LNG trade in recent years. Exporting directly from the West Coast “would give [Canada and Mexico] easier and potentially cheaper access to the Asian markets that are forecast by the industry to drive growth,” according to reporting from the Financial Times.
And Canada and Mexico are not alone in the rush to capitalize on Asian buyer’s demand for new sources of LNG. A floating natural gas project off the coast of Argentina could soon emerge as a new supplier for Eastern markets as BP’s Pan American Energy seeks to negotiate contracts with Asian consumers. Pan American is just one of a number of companies aiming to turn Argentina into a major player in global oil and gas markets. Notably, YPF, Petronas, and Tecpetrol are all working on major projects in South America, which sits atop the world’s second-largest shale gas reserves. At present, Argentina is one of just four countries producing shale gas at a commercial scale, alongside the U.S., Canada, and China.
This means that when the United States ends its permitting freeze, the marketplace will be significantly changed. LNG exporters should brace for a much higher level of competition from LNG exporters across the Americas who may have key logistical advantages over U.S.-based enterprises.
By Haley Zaremba for Oilprice.com
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