Canada’s Role in the Global LNG Market – Energy Market Assessment

Executive Summary

Canada has an abundance of natural gas and produces far more natural gas than it needs to meet domestic demand. Traditionally, the United States (U.S.) has been the primary export market for excess Canadian gas, but growing shale gas production in the U.S. has reduced this demand.

Consequently, Canadian (and U.S.) producers have been seeking overseas markets for their natural gas in the form of liquefied natural gas (LNG) exports. Price differentials between North American gas and global LNG have also been large enough to justify the facility development and long-range transportation costs related to LNG trade, although these differentials have been decreasing.

There have been a number of LNG projects proposed in Canada on the West and East Coasts. According to the province of B.C., a reported $20 billion has been spent on the LNG industry in British Columbia (B.C.). Despite this, Canada has yet to emerge as a significant participant in global LNG markets. There are no LNG export projects currently under construction in Canada, and only one of the smaller projects has decided to move ahead.

No proposed projects on the U.S. West Coast are currently under construction and there may still be an opportunity for Canadian west coast projects to take the lead in this region. However, the U.S. is an active player in global LNG markets with multiple LNG export terminals operating and under construction in the Gulf of Mexico.

Global LNG trade is increasing. The strongest LNG demand growth is in Asia, while most near to medium-term increases in global supply will come from capacity already under construction in Australia and the U.S. However, changing LNG market dynamics, including lower prices and fierce competition, have led to considerable uncertainty among all LNG projects.

Canada is a late entrant to global LNG markets and the next several years will be critical to the development of the Canadian LNG industry. Canadian projects have certain advantages, including abundant and relatively low cost natural gas supplies. In addition, west coast Canadian LNG projects have a shorter shipping distance to Asian markets compared to U.S. gulf coast facilities, and east coast Canadian projects have a shorter shipping distance to Europe.

Disadvantages facing Canadian projects include high costs to develop projects in remote locations with limited infrastructure, and, where the construction of new pipelines is required to supply the necessary gas. With LNG prices falling in recent years, the margins needed to justify this type of capital-intensive development have eroded. Increased competition has also made it difficult for Canadian projects to sign long-term supply contracts.

 

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