A pipeline that would carry methane gas from Texas to be exported from the Pacific coast of Mexico is quickly clearing U.S. regulatory hurdles. But the entire prospect of exporting U.S. gas through Mexico looks increasingly shaky as the Biden administration takes a much-needed look at a host of problems caused by booming gas exports.
Called the Saguaro Connector, the planned project already received a deeply flawed State Department approval in November. Now it’s on the agenda this Thursday for the Federal Energy Regulatory Commission, or FERC. All that remains is for that notoriously fossil-friendly panel to give its usual rubber stamp, despite safety concerns and objections from frontline communities in West Texas.
The Saguaro Connector exists for a single purpose: to get methane produced in the gas-rich Permian Basin of Texas and New Mexico out to Mexico’s Pacific coast. From there it can be super-cooled into a liquid and exported to Asia as LNG without passing through the clogged, drought-stricken Panama Canal, a cost-saving measure for the industry. The proposed Mexico terminals are part of a broader plan by Big Oil to create new methane demand in Asia by flooding the market with new supply.
But thanks to President Biden’s recent pause on LNG terminal approvals, the future of Mexico’s export terminals appears uncertain at best. The Saguaro Connector was designed to feed a facility that may now never be built. The commercial justification for the pipeline, which would cut through delicate ecosystems over the wishes of impacted communities, suddenly looks flimsy.
At least four potential LNG projects located on Mexico’s Pacific coast are in limbo due to President Biden’s pause. If these projects, along with supporting infrastructure like the Saguaro Connector, are brought online, it would add an annual 61 coal plants worth of emissions to the atmosphere — all while driving up utility bills for US consumers.
With permits for new LNG terminals paused, methane export pipelines should be paused as well. It falls to FERC to reject the Saguaro Connector Pipeline while the administration sorts out the future of Permian methane exports.
US Methane, Mexican LNG
The Department of Energy (DOE) must approve gas exports to countries with which the US has no free trade agreement, under an arcane law called the Natural Gas Act. Specifically, DOE must find that such exports are in the public interest. President Biden’s permitting pause aims to give DOE time to overhaul its existing approval process, so it can begin considering LNG’s impacts on the climate, consumers, and fenceline communities.
DOE’s public interest test doesn’t just apply to LNG exported from US terminals; LNG exported from Canada and Mexico that is produced with US-sourced methane also must pass the test. After the Gulf Coast of Texas and Louisiana, the region most impacted by President Biden’s LNG pause is the Pacific Coast of Mexico, where the Saguaro Connector is proposed initially to feed an LNG export terminal currently in limbo.
Permian Profits
The Waha Hub in west Texas sets the benchmark price for methane within the Permian Basin. It is also the starting point for the Saguaro Connector, a pipeline that would move 2.8 billion cubic feet per day (bcf/d) of methane. From Waha, Tulsa-based developer ONEOK Inc. plans to build 155 miles to the Mexican border near Chihuahua, where Saguaro would link to the proposed Sierra Madre pipeline. The ultimate destination is 500 more miles west at Mexico Pacific LNG, a proposed export terminal on the Pacific Coast capable of exporting 1.9 bcf/d of liquefied methane.
Speaking at an industry conference in December, ONEOK’s Chief Financial Officer bluntly said the Saguaro Connector “will not go forward if we think we are in a situation where we [have] a pipe to nowhere.” In other words, to proceed, Mexico Pacific LNG needs to secure financing and reach a Final Investment Decision (FID). This presents a Catch-22.
First, the export terminal is being developed as three LNG “trains” across two separate projects: Mexico Pacific 1 and 2 and Mexico Pacific 3. (Each train has an advertised capacity of .625 bcf/d.) Although the project was originally authorized by the Trump Administration to export 1.7 bcf/d of LNG, the facility later sought an additional .79 bcf/d from the Biden Administration based on an estimated increase in output. In other words, even if the first two trains could theoretically be brought online under the current authorization, the third would require an approval of the still-pending 2022 expansion request — currently on pause courtesy of President Biden.
But that’s a big “if.” Like every other LNG project, Mexico Pacific was given seven years from its original DOE authorization to begin exporting. That deadline is fast approaching in December 2025. There isn’t enough time for Mexico Pacific to build the first two trains and begin exporting in time. New LNG projects take at least three years to build (and often much longer).
To proceed, then, Mexico Pacific 1 and 2 would need an extension from DOE. But last April, the agency said it would only allow extensions if two criteria are both met: 1) the project is under construction and 2) the project was delayed for reasons beyond the developer’s control.
Two projects, Magnolia LNG and Lake Charles LNG, previously sought extensions under the new policy without being under construction, and both were forced to restart their applications as a result. Both applications were still pending when the pause began, effectively freezing them — courtesy again of President Biden.
How can Mexico Pacific 1 and 2 get an extension? It needs to be under construction. How can it begin construction? It needs to convince financiers that the project is viable. How can it convince financiers it is viable if it can’t get a permit? It can’t. The project will likely be forced to join Lake Charles and Magnolia on the list of paused facilities.
Days before President Biden announced his LNG pause, Mexico Pacific announced that all three trains had been fully subscribed, meaning that long-term purchasers had agreed to buy LNG from the project. But with the uncertainty stemming from the pause, the Saguaro Connector has quickly become exactly what ONEOK promised to avoid: a pipeline to nowhere.
Plan B?
ONEOK needed Mexico Pacific in order to proceed with the pipeline, but the pipeline has never been about one terminal. Consider that the pipeline’s capacity (2.8 bcf/d) exceeds the current authorization (1.7 bcf/d) of Mexico Pacific. Saguaro Connector is a broad, ambitious bet on US methane leaving Mexico for Asia as LNG.
Six LNG export projects are proposed for or under development on Mexico’s Pacific Coast. A relatively small project (Energia Costa Azul, or ECA, Phase 1) is already under construction. Four others including Mexico Pacific are impacted by the pause, the extension policy, or both.
The sixth project, approved by the Biden Administration in late 2022 as part of a bargain with Senator Ted Cruz (R-Texas), is likely unaffected. But in 14 months since getting the green light, this single project (Vista Pacifico) has failed to garner any commercial momentum in the form of long-term LNG contracts — the key ingredient needed for LNG projects to reach a final green light for the project to commence.
Source: Capacity courtesy of East Daley Analytics, commencement deadlines from DOE, commercial momentum from regulatory filings and press releases.
A seventh facility on Mexico’s Atlantic Coast, NFE Altamira, deserves mention as well. Although the offshore project’s nFTA approval is paused, it is expected to begin exporting imminently to countries in the Caribbean with which the US has free trade agreements. Thanks to a favorable decision from the Commerce Department, LNG from the project will also flow from Mexico to Puerto Rico, carried by non-US flagged ships, courtesy of a generous exemption from the Jones Act from Biden’s Department of Homeland Security.
Even if Mexico Pacific could provide the Saguaro Connector with a commercial anchor, existing pipeline capacity between the Permian Basin and Mexico is only being utilized at a rate of 42%. With current pipelines being underutilized, and new export terminals facing permitting and commercial challenges, the Saguaro Connector’s usefulness looks even more doubtful.
No FERCing way
Looking only at these six possible facilities in Mexico not already under construction, the climate impact could reach an annual 273 million metric tons of carbon dioxide equivalent (CO2e), or the equivalent of over 73 coal plants. If these projects are ever brought online with methane sourced from the Permian Basin, it will result in higher utility bills across the American West, as exports drive up prices on consumers.
Sen. Joe Manchin (D-WV) responded angrily three years ago when FERC proposed considering the climate impacts of LNG terminals and methane pipelines. His ensuing tantrum caused then-Chairman Glick to lose his renomination, effectively firing him from the panel. But as much as he may want FERC to ignore climate, not even Manchin can wish away the panel’s basic responsibility to common sense.