By Rod Nickel and Scott DiSavino
The start-up of LNG Canada, the country’s first export terminal of its kind, is likely to strain its natural gas reserves for several years and force producers to reduce exports to the United States, where demand for the fuel is at record levels, companies said.
Shell-led LNG Canada has begun testing its C$40 billion terminal in British Columbia ahead of commercial operations starting in mid-2025. The terminal will process up to 2 billion cubic feet per day (bcfd), equivalent to 11% of current Canadian gas production.
Like Canada, the United States is building more liquefied natural gas (LNG) terminals because the country produces more gas than it consumes. But even as the world’s largest gas producer, the US is not drilling enough to meet both its domestic consumption and rising export demand.
Western Canadian producers were able to increase average production by up to 0.5 billion cubic feet per day year-over-year, indicating a temporary supply gap for the U.S. and Eastern Canadian markets as LNG Canada begins full operations, says Jamie Heard, vice president of Capital markets at Tourmaline Oil, Canada’s largest gas producer, said Reuters.
This estimate is based on new capacity and not annual fluctuations due to outages.
“Our view is that it will take up to four years to satisfy the market pull that LNG Canada alone has,” Heard said.
According to the U.S. Energy Information Administration, Canada exported about 8 billion cubic feet of gas per day to the U.S. via pipeline in 2023, compared to an average of 7.5 billion cubic feet in the previous five years.
ARC Resources, Canada’s third-largest gas producer, expects periods of lower Canadian exports to the U.S. as supply and demand mismatch. However, these periods are likely to be short-lived as the market rebalances, CEO Terry Anderson said in an email.
Meeting demand depends on how prices compare between global gas hubs, and the differences are more volatile, he said.
ARC will supply gas to the Cedar LNG project, one of several on British Columbia’s Pacific coast that is close to Canada’s vast Montney shale field and has a short shipping distance to Asian markets.
Cedar is expected to receive final investment decision mid-year to build a 0.4 billion cubic feet of gas per day facility upon opening in 2028, and Woodfibre LNG will produce 0.29 billion cubic feet of gas per day upon completion in 2027 consume day.
LNG Canada, in which Malaysia’s Petronas owns a 25% stake, is considering a second 2-bcfd phase, while Ksi Lisim’s LNG is seeking government approval for the country’s second-largest terminal and is seeking another 1.7-2 bcfd.
“The creation of LNG Canada opens new markets for Canadian gas outside the (U.S.) lower 48…a decline in Canadian gas exports to the U.S. could impact all of North America later this decade,” said Eli Rubin, senior energy analyst at the Consulting company EBW Analytics Group.
In the short term, however, LNG Canada will help address the “tremendous current oversupply of stored gas” in Canada and the U.S., Rubin said [EIA/GAS]
After a mild winter, gas prices in North America are currently low and supply is high. [NGA/]
Canada, the world’s fifth-largest gas producer, pumped a record 18.8 billion cubic feet of gas from the ground in December, according to the latest data from the Canadian Energy Regulator.
In the longer term, overextended drillers could produce too much gas, said Mark Oberstoetter, an analyst at Wood Mackenzie, adding that the consulting firm forecasts Canadian gas production to reach 25 billion cubic feet per day in the mid-2030s.
Infrastructure, particularly raw natural gas processing facilities, needs to be expanded to enable increased Canadian production.
Tourmaline’s Heard said his company and ARC are expanding processing capacity, but not all of the new facilities needed by the industry are under construction.
Export pipeline capacity could also pose a barrier to production growth, with much of it fully booked for the next few years, ARC’s Anderson said.
Still, issues of higher future demand are welcome for an industry currently struggling with surpluses.
“After the current season, where there appears to be an oversupply, we are looking at a pretty exciting market,” said Jean-Paul Lachance, CEO of Peyto Exploration and Development.
(Reporting by Rod Nickel in Winnipeg, Manitoba and Scott DiSavino in New York; Additional reporting by Nia Williams in British Columbia; Editing by Marguerita Choy)