Over the past decade, the global energy sector has turned its attention to Latin America thanks to the region’s critical role in the ongoing electrification drive. Latin America produces nearly 40% of the world’s lithium supply, and is home to over 65% of global reserves.
Unfortunately, LATAM hardly gets a passing mention in another booming industry: Liquified Natural Gas or LNG.
Currently, only Peru and Trinidad & Tobago export LNG. Interestingly, Brazil remains one of the largest LNG importers in the region despite having more regasification capacity than any other Latin American country.
However, a series of LNG projects proposed for Mexico’s Pacific Coast could turn the country into the region’s LNG powerhouse. According to a recent report by Gas Outlook, there are plans to build as many as five major LNG export terminals on Mexico’s Pacific Coast, potentially transforming the country into a top-tier gas exporter. According to the analysts, most of the feed gas needed to supply Mexico’s LNG terminals would largely be extracted from America’s Permian basin in Texas and New Mexico rather than sourced from Mexico, giving the South American country a big cost advantage. First off, natural gas at the Waha hub–a regional pricing hub for gas in the Permian Basin in West Texas–sold for near-zero or sub-zero prices for much of 2024. Indeed, prices at the hub spent 164 days in negative territory and hit an all-time low -$7/mmbtu at the end of August, truly historical lows. There’s a method to the madness here. The Permian Shale boom led to a surge in associated gas production, with output growing more quickly than takeaway capacity. Consequently, Permian gas infrastructure has become saturated in recent years, effectively meaning that producers sometimes have to pay for someone taking their gas so that they can continue to produce something more valuable: crude oil. However, the same gas sells for around $10-$14 per MMBtu when it finally arrives in Japan or Korea, potentially leaving huge profit margins for the seller even after factoring in liquefaction costs.
Second, LNG exports from Mexico’s Pacific Coast would have 11 fewer days of travel when shipping to Asia compared to the U.S. Gulf Coast. According to Mexico Pacific Limited, the developer of the $15 billion Saguaro Energy LNG project in Sonora, currently, shipments from Louisiana and Texas pass through the Panama Canal on the way to Asia; in contrast, the journey from Mexico is as much as 55% shorter, saving $1/MMBtu in transit costs. This gives Mexican LNG projects a big advantage over other North American LNG projects.
Unfortunately, violence from drug cartels, political risk, and mounting costs are likely to act as considerable headwinds for Mexico’s LNG dreams. For instance, the 15 million-tonne-per-annum (mtpa) Saguaro Energy LNG, a project to be built in the Mexican state of Sonora, is already facing numerous hurdles.
“In the [U.S. Gulf of Mexico] the gas supply is not exactly a given, but it’s close. If you want to build an intrastate pipeline, it’s pretty easy,” Clark Williams-Derry, an energy finance analyst at the Institute for Energy Economics and Financial Analysis, told Gas Outlook. “In Mexico, you’re building an international pipeline,” which is going to be more complex. Williams-Derry pointed to Energía Costa Azul as a cautionary tale. Already under construction in the Mexican state of Baja California, the small LNG project has seen repeated delays and cost overruns due to labour challenges. In August 2024, Sempra Infrastructure, ECA’s owner, said the project’s completion would be delayed from the third quarter of 2025 until the second quarter of 2026, adding another $300 million to the project’s estimated cost of $2 billion. “We’re disappointed with the change in schedule,” Sempra CEO Jeffrey Martin said on a call with investors at the time. Meanwhile, the fate of the much larger phase of Energía Costa Azul, at 12 mtpa, hangs in the balance. “The experience of Energía Costa Azul does raise questions about schedule slippage and cost, at a time when the rest of the entire world is building an unprecedented amount of LNG, which means it’s going to be harder to get the contractors,” Williams-Derry said.
Overall, Mexico and its Latin American neighbors are likely to remain net gas importers in the foreseeable future thanks to declining production from mature fields, inhospitable terrain, insecurity and a lack of regional gas interconnections. LNG Industry now estimates that without additional development, the region’s gas imports will potentially soar to 12 billion ft3/d from current levels of 5.2 billion ft3/d by 2035. LAM governments are currently having to strike a fine balance between supporting domestic industry and regional gas demand as power generators increasingly turn to gas as the hydropower sector faces unpredictable weather patterns.