MEXICO CITY/HOUSTON, U.S. -- As Asia's appetite for liquefied natural gas grows, energy companies are building more loading and liquefaction facilities on the North American western coast in order to bypass congestion at the Panama Canal.
Asian demand for liquefied natural gas will roughly double to nearly 500 million tons a year by 2040, making up around 70% of global demand, energy giant Shell predicts. Shipments to Southeast Asia in particular is expected to increase by nearly 100 million tons between 2020 and 2040, outpacing the jump of over 60 million tons in those to China.
"There's an enormous amount of interest in our first liquefaction project on the West Coast," Dan Brouillette, president of Sempra Energy unit Sempra Infrastructure, told Nikkei. The company will "evaluate the Asian market in particular," he said.
The U.S.-based energy group is investing approximately $2 billion to build a gas liquefaction facility in Mexico's Baja California, which will start production in 2024 with an annual capacity of 3.25 million tons. The company is considering adding another 12 million tons of capacity is expected to be added in the next phase of the project.
Sempra Infrastructure in January also announced that it signed a memorandum of understanding with Mexico's Federal Electricity Commission, or CFE, to jointly build an LNG terminal in Sinaloa.
Mexican President Andres Manuel Lopez Obrador has signaled the government's support for CFE's LNG operations, with an eye on exports to Asia and other overseas markets.
On Canada's west coast, Singapore-based Pacific Energy looks to start major work on construction of an LNG export facility in 2023. Woodfibre LNG, the unit in charge of the project, signed an engineering and construction contract with U.S.-based McDermott International in November.
The project is slated for completion in 2027 with an annual capacity of 2.1 million tons. It will reportedly cost 1.6 billion to 1.8 billion Canadian dollars ($1.28 billion to $1.44 billion).
"The world needs more Canadian natural gas," Woodfibre said. "The fact that we have already sold over 70% of our future production shows that Canadian natural gas is -- and will continue to be -- in high demand around the world."
Currently, the majority of North American LNG facilities are on the Gulf of Mexico. None are operating on the west coast, and few are under construction, including a joint Canadian venture between Shell and Mitsubishi Corp. as well as Sempra's project in Mexico.
But LNG from the Gulf of Mexico needs to first pass through the Panama Canal. The number of LNG carriers crossing the waterway jumped roughly 30% in fiscal 2021 due to large-scale shipments to the China, and the canal is expected to face even greater congestion as Asian demand grows.
Bypassing the canal altogether means much quicker and cheaper shipments. It takes around eight days to bring LNG from the western coast of North America to Asia, compared with at least 20 from the Gulf of Mexico.
Congestion at the canal drove spot LNG prices up in Asia around February 2021, and the resulting hike in electricity rates triggered some Japanese power providers to collapse. An increase in shipments from the West Coast could minimize such risks.
As the natural gas price spikes in Europe amid the war in Ukraine, more and more U.S. LNG is sold across the Atlantic. But while this has temporarily reduced traffic on the Panama Canal, the number of carriers passing through the canal will only increase over the long term as long as Asian demand for LNG expands.
"Congestion is clearly going to continue worsening," said Yutaka Shirakawa at the Japan Oil, Gas and Metals National Corp. The development of new LNG facilities on the west coast of North America is expected to have a major impact on Asia's energy supply moving forward.