Canadian LNG Backers See Some Rough Sailing Ahead

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Political winds are changing in Canada, but perhaps not quickly enough to mobilize the country’s large natural gas reserves in time to alleviate market dislocations exacerbated by Russia’s invasion of Ukraine, say two long-time observers of Canada’s energy industry.

“Canada is the world’s greatest untapped source of LNG potential from a stable, safe supplier,” David Yager, a seasoned veteran of Alberta’s energy industry, told Energy Intelligence in an interview last week. “There is a different tone coming out of Ottawa due to the reality of a world in need.”

Yager, who has spent decades navigating Alberta’s energy industry both in and out of the boardroom, most recently authored a book: "From Miracle to Menace – Alberta, a Carbon Story." He says there is definitely renewed political interest in reviving LNG export projects given recent events, and that geopolitics are also shifting project developers' desire to make long-stalled export plans viable.

From a market standpoint, he noted that European buyers are coming around to the idea that long-term contracts with safe suppliers may be necessary to get the LNG they need as they seek to wean themselves off Russian gas. And Canada could help fill that need — if not for intense opposition from environmental groups, some First Nations and others, mostly at the local and provincial levels.

East and West

Canada currently has only one major LNG export facility under construction — at Kitimat in British Columbia. The Shell-backed LNG Canada is 60% complete and is designed to produce 14 million tons per year starting in 2025. This could double if plans for additional liquefaction trains are approved by Shell and its partners.

However, more numerous are stalled or mothballed projects. Ottawa says that since 2011, 18 export facility projects — including LNG Canada — have been proposed that could have produced and exported 216 million tons/yr of LNG, the equivalent of 29 Bcf/d of gas.

Canada's Natural Resources Minister Jonathan Wilkinson said recently that the country is looking again at projects on its Europe-facing Atlantic Coast. The ministry lists five proposed east coast terminals: Goldboro LNG, Bear Head LNG, A C LNG, Energie Saguenay and Stolt LNGaz. An infrastructure fund recently acquired the Bear Head project near Point Tupper, Nova Scotia.

“We are looking at all of those projects and looking at whether there is a way in which the government of Canada can help in the context of expediting those projects," Wilkinson said.

Given that Canada has proved reserves standing at about 71 trillion cubic feet, according to the US Energy Information Administration, Yager said it is “a cruel thing for those of us in the Canadian business to watch” as Canadian gas — potentially as much as 1,400 Tcf in ultimately recoverable reserves, according to the Canadian Gas Association — languishes without an outlet.

A Slow Boat to Somewhere

Plentiful Russian and spot market gas, combined with seemingly insurmountable political and regulatory barriers to large energy infrastructure projects in Canada, have long stymied efforts to export gas to markets other than the US.

In contrast, the US between 2014-20 built six such facilities and approved more than a dozen more. This is due, says Canada’s pro-business Fraser Institute, to a steep regulatory burden and stiff opposition by various interest groups, often at the provincial level. For example, Fraser Institute analysts point to studies showing that LNG projects in Canada take 19 more months to gain approval than those in the US.

This combination of regulatory burden and political opposition isn’t going away due to events overseas. Instead, they form what Professor Joseph Doucet, dean of Social Sciences and Humanities at the University of Alberta, says is a semi-permanent resistance to large energy infrastructure projects of all types. Much of the opposition is “independent of the project or resource,” he told Energy Intelligence.

From Doucet's perspective, the political winds blowing out of Ottawa are more a gentle breeze than a hurricane. As a result, he does not see significant progress on LNG export development anytime soon, especially given concerns that shipping Canadian gas abroad will raise gas prices within Canada.

Still, Canadians aren’t entirely inured to what’s going on overseas, he said. “There is a realization now that the role Russia plays is different. In Canada, a lot of this is fairly new, but there is an evolving knowledge of how global energy markets work.”

But for leadership on actually moving supply to where it's needed, Doucet said look to the south. “Canada is small and won’t move nearly as quickly as the US."

LNG Projects, Policy and Regulation
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