Polar LNG Express: North American NatGas Dynamics to Change with LNG Canada

North American natural gas producers spent most of 2024 hanging on for better times and higher prices.

Relief finally came in the last weeks of the year, when two major LNG export facilities on the Gulf Coast, Plaquemines and Corpus Christi Stage III, began production.

Plenty of LNG projects are still in the chute, but the next major project expected to come online is much farther north and west of the primary U.S. production zone—and will offer a considerably different alternative for potential international customers.

LNG Canada is expected to come online sometime in the middle of 2025. The facility, located on Canada’s West Coast in Kitimat, British Columbia, is an international joint venture that will produce 14 million tonnes per annum (mtpa) after its first construction age is complete.

The facility’s opening will change the natural gas market dynamics in North America, at least for LNG. Cheap Canadian gas will have a major pull toward the country’s West Coast as opposed to pipelines heading into the U.S. and a faster, easier trip to theoretically growing markets in Southeast Asia.

Same story, different accent

The factors pushing for the development of a Canadian LNG export sector mirror the issues that led to an aggressive push for more export capacity in the U.S. The price differential between the countries, however, shows U.S. dominance.

For the last two years, the U.S. natural gas market has been in the doldrums, thanks to overproduction, weak demand and record levels in storage. This is due, in part, to a couple of warm winters. Benchmark Henry Hub prices fell below $2/MMBtu for much of the spring in 2024, causing producers to cut production and delay the completion of some wells.

One reason for the overproduction? Producers in some basins were building their infrastructure in preparation for the opening of several LNG projects along the Gulf Coast.

The story has been repeated north of the border.

In September, Alberta Energy Co. (AECO) prices reached CA$0.05 (US$0.035) per MMBtu, a two-year low, Reuters reported. Thanks to warm weather and low continental demand, Canadian gas storage was practically full, and producers had cut production by about 750 MMcf/d, analysts at RBN said.

However, cold weather and anticipation of the oncoming LNG draw led many producers to bump up natural gas production again as the year closed. RBN analysts estimated Western Canada set a new production record on Dec. 25 of 19.38 Bcf. The AECO price midway through January had shown a corresponding improvement, up to CA$1.90/MMBtu, or US$1.32/MMBtu.

Canada’s push to ready its natural gas market for the opening of its own LNG export terminal has, as a temporary side effect, benefitted U.S. natural gas customers, said Ian Heming, a natural gas analyst with East Daley Analytics.

“Especially with LNG Canada and other LNG projects coming up on that Pacific Coast, we’ve seen that producers in Canada are starting to position themselves for that—to make sure they’ve got that production already ready to go to answer the demand,” Heming said.

“As a result, right now it’s benefitting the U.S. in those lower AECO prices. So, any time we can bring anything in from Canada, that’s the first lever we’re trying to pull because those prices are so beneficial to us.”

A study by Wood Mackenzie showed that in the first week of January, the U.S. imported an average of 9 Bcf/d of Canadian natural gas, up from 5.6 Bcf/d during the same time in 2024, Natural Gas Intelligence reported.

The prices may be a boon for U.S. customers, but Canadian producers are anxious for its new LNG facility to start up and bring long-awaited relief to the sector, the Canadian business journal Financial Post reported in November.

“We think the outlook for natural gas in Western Canada is probably the best since 2005,” said Randy Ollenberger, an analyst at BMO Capital Markets, at a luncheon of oilfield service contractors in Calgary. “Because gas has really sucked since then, and we think it’s going to be much better over the next couple of years here.”

Northern opening

Producers are excited because the new facility opens up a new LNG pathway to a growing market.

LNG Canada is an international joint venture led by Shell. The other partners in the business are a lineup of potential southeast Asia customers.

Shell owns 40% of the JV. Petronas, Malaysia’s national oil and gas company, has a 25% stake. PetroChina owns 15%, Mitsubishi has 15% and Korea Gas Corp. owns 5%.

Wood Mackenzie forecasted in December that Asian LNG demand would grow from 270 mtpa in 2024 to 510 mtpa in 2050. LNG is essential for a region trying to develop economically while attempting to wean itself off of coal, the analytical firm reported.

“Nations like Bangladesh, Vietnam, the Philippines, Indonesia and Malaysia will not be able to realize their plans to transition to gas-fired power if LNG prices are high and coal use, which hit record levels in both 2022 and 2023, will keep growing,” the study said.

While the pricing levels are still to be determined, LNG Canada’s British Columbia location does give it a distinct time advantage over current U.S. facilities.

As a rule of thumb, it will take an LNG carrier eight to nine days to ship from Canada’s Prince Rupert LNG terminal to Tokyo, said Racim Gribaa, president of Global LNG Consulting, at the annual Canada Gas Exhibition and Conference in Vancouver in May 2024. It takes ships departing from the U.S. Gulf Coast twice the time to reach the same destination.

On the Asian side of the Pacific, some potential customers already have an LNG infrastructure, while others are building. Japan is largely credited with turning LNG into a viable energy source. China, meanwhile, announced in mid-2024 that LNG infrastructure will account for 47% of its midstream projects through 2028, GlobalData reported.

Northward progress

Canada has endured some stumbles during its foray into the LNG market. The JV partners announced the project in 2012, but construction didn’t start until 2018.

Energy firms have had difficulty with LNG projects on Canada’s West Coast before, with several major projects canceled, stopped in court or abandoned because of ongoing environmental disputes, S&P Global’s Santiago Canel Soria said in a November analysis.

Besides opposition from environmental groups, Canadian producers also face difficulties in working on tribal lands and the added costs of delivering the natural gas from central Canada to the far west of British Columbia.

Canadian LNG export projects are among the globe’s most expensive because of the high  cost of the pipelines required. Another barrier is the remote location, which is difficult to build in and does not have access to a large labor pool, Soria wrote.

LNG Canada has walked a tightrope with development and working with the First Nations Haisla people, who own the territory where construction is ongoing. The JV developed a community charter with the Haisla and other First Nations people in the area.

The company has also bought five tug boats (three electric) that will be operated as a business by people from the tribal lands.

Jason Klein, LNG Canada CEO, said in a company publication that the firm has emphasized transparency and communication with its neighbors. Recently, the facility began flaring as part of its startup operations and has kept in touch with tribal leaders throughout the process.

“We want everyone to know what we’re doing, why we’re doing it, and when,” Klein said.

Next in the chute

Once LNG Canada goes online, its capacity will be equal to about 10% of Canada’s natural gas output, said Phil Hodge of Pine Cliff Energy in an interview with Michael Campbell, a Canadian financial analyst.

The project will dwarf all others slated in Canada through the end of the decade, but several other LNG projects are expected to add to the 10% by the end of the decade.

Woodfibre, with a 2.1 Bcf/d capacity, and Cedar FLNG, with 3 Bcf/d, are expected to come online in 2027. Woodfibre is located close to the U.S./Canada border while Cedar is in the same bay as LNG Canada.

Another major LNG plant, Ksi Lisims LNG, has an expected capacity of 12 Bcf/d of natural gas but is not expected to come online until the end of 2030.

LNG Canada potentially has a Phase II expansion, but the JV is still deciding whether to go forward.

Government grace

The Canadian project has another difference than counterparts in the U.S.—straight up government support, at least for the time being.

In 2024, several U.S. LNG projects had to wait for permits while the U.S. Department of Energy studied the need for more LNG export projects, as ordered by the Biden administration.

In Canada, while environmental and political opponents fought the project early, some leaders in the Canadian government are acknowledging the economic promise and potential environmental benefits.

Without natural gas, the potential LNG customers will be burning coal, said David Eby, the British Columbia premier.

Eby said he saw the trade as reducing emissions overall, in an interview with Canadian publication EnergyNow.

“We’ve made some pretty clear commitments around driving down emissions in the province, and we’re at a table with them about how we can try to achieve both of our goals,” Eby said, referring to LNG Canada’s investors. “From their perspective, ensuring that reliable, low-carbon energy, and from our perspective, all the emissions not showing up on BC’s books as the main producer.”