August 20, 2024
Liquified Natural Gas (LNG) might well be the future of ocean transportation, and Mexico—in its bet to become a global hub for manufacturing—is not staying far behind.
Last week, two U.S. companies announced a bold bet in Mexico aimed at improving the country’s energy infrastructure. Infrastructure company Pilot LNG will work with GFI LNG to build an ambitious LNG terminal in Mexico’s Salina Cruz Port, located in the southern state of Oaxaca.
The project itself is expected to have both a transhipment and bunkering terminal capable of serving vessels making their way through the Pacific—likely, headed to or departing from the Panama Canal. The terminal will also have a modular liquefaction plant capable of converging natural gas into LNG, tapping into reserves found in the Gulf of Mexico. In total, it expected to generate roughly 600,000 gallons of LNG per day.
Currently, Mexico has just four LNG facilities in operation within the country with an additional terminal being built in Campeche to serve traffic in the Gulf of Mexico. The new Salina Cruz center will increase coverage to the country’s south, while also serving as a strategic stopping point to trade headed to South America or hoping to cross the Panama Canal.
The announcement itself is riding two separate waves that are generating great excitement (and controversy) in the world of supply chains. On the one hand, it comes at a time where the world’s carriers are making large investments on LNG as an alternative source of fuel. In great part, this is due to falling expectations on the capabilities of biofuels and hydrogen to serve as alternative energy sources to ocean trade in the coming years, Meanwhile companies still hope to meet ambitious targets in their efforts to decarbonize, pushing them to use LNG, which is believed to be a cleaner form of energy than diesel—though evidence on the matter is mixed.
On the other hand, the announcement is riding on a generalized interest from Mexico’s government to transform Salina Cruz—a small port in Oaxaca—into a powerful huf for transoceanic trade. The basic idea is to build a land corridor across the Isthmus of Tehuantepec that connects cargo from the Pacific to the Gulf of Mexico, thus circumventing the Panama Canal and turning Mexico into an epicenter of global trade. In 2022 alone, the Mexican government invested $17.3 bn on the project, which includes 79 municipalities in the nation’s south.
The development of Salina Cruz is also a part of a broader interest in Mexico as companies seek to divest their investments in China to friendlier nations. Namely, the process commonly referred to as nearshoring. Mexico has been at the epicenter of this trend, recently surpassing China as the top trade partner to the U.S. By developing Salina Cruz into a more capable terminal, the Mexican government, aided by private industry, is signaling its desire to further capitalize on nearshoring as a trend.
In all, the announcement of this new LNG terminal is a signal of broad trends in ocean traffic and a clear bet on the future. It is, on the one hand, a hint that Mexico might play a larger role when it comes to ocean traffic.
