North America’s LNG boom will not only threaten to increase consumer bills but also jeopardise the long-term stability of the continent’s gas and electricity markets, a new report suggests.
Gas industry analysts have known for more than a decade that LNG exports would boost North American gas prices, according to the report, published by the Institute for Energy Economics and Financial Analysis (IEEFA).
IEEFA found that in particular, the Mexican LNG industry faces the potential for disruption by forces outside of the country’s control, including extreme weather, as well as trade, regulatory, and legal decisions in the US, let alone the tariffs (ed).
US developers has commissioned eight large LNG export terminals, capable of shipping almost 15% of the country’s total gas production. One Mexican terminal that relies on US gas came online last year, and a second project is under construction.
The LNG industry hopes to further expand its footprint, with dozens of new projects proposed on the US Gulf Coast and on Mexico’s Pacific coast.
This meteoric rise in LNG exports, however, has exposed North America to the increased volatility and higher prices of global gas markets, raising serious concerns for the proposed building of Mexican LNG export terminals, the report warned.
“Mexican policymakers should be aware that the LNG boom could cause pain for Mexican consumers, in the form of higher and more volatile prices for both gas and electricity,” said Clark Williams-Derry, IEEFA Energy finance analyst and co-author of the report.
“Gas consumers and policymakers in Mexico should be fully cognisant of the hazards that LNG exports pose to the stability of North American energy markets and should be wary of the LNG industry’s plans to build additional export terminals in Mexico,” he added.
The US LNG industry has targeted Mexico’s Pacific coast for new export plants, since it offers a shorter and cheaper route for its gas to reach Asian markets. However, Mexican policy makers would be well advised to take a skeptical view of the expansion of the country’s LNG export industry.
Facilitating the expansion of North American gas exports could cause significant disruptions in Mexican energy markets, including higher and more volatile prices for both natural gas and electricity, IEEFA’s report said.
In addition, Mexican LNG facilities are at higher risk of market manipulation, trade disruptions, and extreme weather events that can limit the facilities’ access to gas.
New Mexican LNG plants could also open at a time when global LNG markets are saturated and oversupplied, leading to the possibility of low prices, impaired profits, and reduced utilisation that undermines perceived economic benefits of these projects, the report warned.
