top of page

Powering Progress: Accelerating Canada’s LNG Future

The race for global LNG dominance is ongoing, with fierce competition.


The global landscape of natural gas consumption has experienced a significant transformation in the last few years, marked by a remarkable surge in demand for liquefied natural gas (LNG). According to Evaluate Energy, between 2020 and 2022, global gas consumption increased by 64%, propelling LNG trade to nearly double. A pivotal driver behind this transition towards LNG was Russia’s invasion of Ukraine, which led to a 15% decline in pipeline trade and a corresponding growth in LNG trade. The global LNG trade network spans 20 exporting markets and 48 importing markets. The Canadian Energy Centre indicates that global LNG demand has escalated by 13% over the past five years, and projections suggest that it is expected to grow a further 70% by 2040.

 

This burgeoning demand for LNG is notably concentrated in Asia, where import capacity is anticipated to escalate by almost 42% by 2030. This presents a substantial opportunity, exemplified by initiatives like South Korea’s plan to convert 24 coal-fired power plants to natural gas by 2034. Meanwhile, according to the Energy Information Administration (EIA), the United States (U.S.) has emerged as a dominant force in LNG exports, outpacing all other countries in 2023 with an average of 11.9 billion cubic feet per day (bcf/d), marking a 12% increase from 2022. Approximately 60% of U.S. LNG exports are directed towards Europe, and 27% are directed towards Asian markets. This is particularly crucial in light of Europe’s increased reliance on U.S. LNG following geopolitical tensions with Russia.

 

Australia has emerged as the world’s second-largest LNG exporter, with exports exceeding 10 bcf/d in 2022/2023. Despite this mega capacity, concerns loom over potential supply shortages in Asian markets. Given its proximity, this shortfall provides an opportunity for alternative suppliers like Canada. Qatar, the third-largest LNG exporter, annually exports a comparable volume to Australia, with 84% of its exports concentrated in LNG. Most notably, 72% of Qatari LNG is routed to Asia, underscoring its significance as a critical supplier to major Asian economies.

 

What’s surprising is that despite geopolitical challenges and sanctions, Russia has maintained its position as the fourth-largest LNG exporter, with a notable shift towards prioritizing LNG infrastructure development to access markets beyond traditional pipelines.

 

Canada is almost up and running, with its first facility expected to export in 2025 and numerous other projects in the works.

 

Canada is now on the cusp of a significant milestone: exporting LNG for the first time. Presently, there are eight LNG export projects across Canada at various stages of development. These projects represent a potentially colossal investment, totalling over $100 billion in capital expenditure and yielding over 50 million tonnes per annum (mtpa) in exports if all are approved and realized. Notably, most of these projects are concentrated in British Columbia (B.C.) except for Grassy Point, which is slated for development in Newfoundland & Labrador pending its application for an export license.

 

Among these ventures, LNG Canada stands out as a flagship project nearing fruition. Situated in Kitimat, LNG Canada is poised to become Canada’s inaugural large-scale LNG export facility. With a projected production capacity of around 1.8 bcf/d (equivalent to 14 mtpa), LNG Canada is now 85% complete and anticipates commencing commercial operations in 2025. Cedar LNG, another significant endeavour, is advancing swiftly with a capacity of three mtpa. Cedar LNG expects to reach a final investment decision in mid-2024 and become fully operational by 2028.

 

While LNG Canada and Cedar LNG lead the race in terms of progress, other projects are also making strides, albeit on a smaller scale. For example, Woodfibre LNG targets operational commencement by 2027 and is working to meet net-zero commitments both in construction and operations. Moreover, the Ksi Lisims boasts a design that promises to achieve net-zero emissions by late 2027 or 2028. Tilbury Phase 2, an expansion of FortisBC’s existing facility, is undergoing environmental assessment to enhance its LNG storage and production capacities. Grassy Point LNG, proposed by Woodside Energy Holdings, represents a significant opportunity for Canada’s East Coast. Finally, the Port Edward LNG project illustrates how smaller-scale projects could be developed more quickly than their larger counterparts.

 

We must leverage our competitive advantage and accelerate future growth.

 

Canada possesses several advantages in supplying the Asian LNG market, such as shorter shipping distances, cost advantages, and lower emissions profile. LNG affordability is crucial, and while Canada ranks mid-tier in upstream supply costs, it has advantages in liquefaction costs due to its cold climate and shipping costs due to its geographical proximity to Asia. Canada’s geographic advantage cannot be understated. Canadian LNG shipments are half the distance from the U.S. Golf Coast and between 1.2 and 1.6 times shorter than shipments from Qatar, depending on the import destination. Additionally, Canadian LNG projects have the lowest emission intensity profiles globally. According to the Canadian Energy Centre, Canada’s geographical advantages reduce transportation emissions by an additional 60%, making Canadian LNG an attractive option for Asian markets as they advance their respective environmental, social, and governance agendas.

 

Natural gas is also a vital transition fuel, emitting significantly fewer emissions than coal and oil. According to a report by Enbridge, natural gas generation produces 45% fewer GHG emissions than coal, and 30% less than oil. Surprisingly, despite global efforts to phase out coal, its usage continues to rise, hitting a new high in 2023, with 1.4% growth, particularly in regions lacking renewable energy access. Research experts at Wood Mackenzie claim that accelerating Canadian LNG exports could mitigate this, reducing emissions by 181 mtpa, akin to removing 41 million cars from roads. Canada’s considerable gas reserves (1,368 trillion cubic feet), strong technical capabilities, skilled workforce, and existing liquefaction facilities further bolster its competitive advantage.

 

Despite these advantages, Canada is projected to supply a meagre 5% of global natural gas demand by 2030.

 

Regulatory headwinds are preventing faster LNG development progress.

 

The regulatory frameworks governing Canadian LNG projects at the federal and provincial levels create significant disadvantages for companies seeking project approval in Canada relative to other jurisdictions. One primary challenge is lengthy approval timelines. According to the Fraser Institute, the Canadian approval process for LNG projects takes approximately 19 months longer than in the U.S., imposing substantial hindrances to project development.

 

Concrete examples highlight the repercussions of prolonged approval processes and opposition. In 2017, Petronas cancelled its $36 billion Pacific Northwest LNG project due to extensive delays and regulatory hurdles, which exacerbated unfavourable economic conditions and rendered the project economically unviable. Similarly, in 2020, GNL Quebec faced a significant setback when a major private investor, Warren Buffet, withdrew support for its $9 billion Energie Saguenay project. Buffet’s decision was influenced by Canada’s struggles in managing railway blockades and protests against infrastructure expansion, reflecting the challenges posed by opposition from various areas. These instances underscore the pressing need for Canada to address regulatory inefficiencies and enhance stakeholder engagement to foster a more conducive environment for LNG project development.

 

18 LNG export facilities have been proposed in Canada since 2011, and we are only now nearing the start-up of our first LNG export facility, LNG Canada, nearly 14 years after its original announcement. In stark contrast, the United States has demonstrated a far more expedited process, having constructed seven and approved 20 LNG export facilities between 2014 and 2020, with each project taking three to eight years from inception to operation.

 

Germany’s approach further illustrates the disparity. In response to the need to reduce reliance on Russian gas and bolster national energy security, Germany implemented an “LNG Acceleration Law,” which aims to enhance LNG infrastructure by streamlining administrative procedures such as environmental assessments and public procurement. The result was the rapid completion of Wilhelmshaven LNG terminal in just 9 months and 18 days.

 

It’s incumbent on Canadians not to squander LNG’s massive economic impact on future generations.

 

Canada’s real Gross Domestic Product (GDP) per capita, has been on a downward trend for several decades compared to other advanced economies, according to T.D. Bank. This trend is now manifesting in the form of a noticeable affordability crisis. The World Bank indicated the gap between Canadian and U.S. GDP per capita has been widening steadily since 2010.

 

Canada must prioritize approving more investments to maintain global relevance and continue fostering economic growth. A key avenue for economic expansion lies in building energy infrastructure. For instance, projects like the Trans Mountain Expansion (TMX) present substantial economic opportunities. Trans Mountain claims that the TMX pipeline alone will create over 800,000 person-years of employment through development and operational phases. During construction, workers have injected nearly half a billion dollars into the economy through expenditures on accommodation, meals, and other necessities.

 

The potential benefits of pursuing LNG expansion in Canada are significant. If the proposed LNG projects across the country come to fruition, they could collectively produce over 6.6 bcf/d of LNG. The Government of Canada estimates that this production level could contribute over $7.4 billion annually to the economy for the next three decades.

 

The ripple effects of such growth extend beyond GDP contributions. Expanding the LNG industry could potentially create nearly 100,000 jobs annually in Canada and unlock over $6 billion in wages and other economic development opportunities for Indigenous Peoples.

 

And it’s more than just economics. Europe urgently needs our gas as it reduces its dependency on the Russian aggressor.  

 

Energy security has emerged as a major concern for Europe since Russia invaded Ukraine. In the first seven months of 2022, natural gas exports from Russia to Europe plummeted by almost 40%, reaching the lowest level in nearly four decades. To counteract this sharp decline, European nations activated both new and previously dormant regasification projects, resulting in a projected 34% increase in LNG import capacity by the end of 2024.

 

The surge in LNG capacity proved lucrative for countries like the U.S. and Qatar, which could swiftly meet Europe’s short-term natural gas demands. However, recent developments pose potential risks to Europe’s energy security. The Biden Administration’s decision to pause pending and future permits for LNG exports to non-Free Trade Agreement countries could strain the U.S. gas supply to Europe, constituting 50% of its current imports. Additionally, Europe faces uncertainty in importing gas from Qatar due to potential conflicts in the Persian Gulf.

 

Despite the gradual decline in Europe’s reliance on Russian gas, Russia still supplies 20% of Europe’s total natural gas imports, according to a report by The Centre for Strategic & International Studies. The uncertainty surrounding future contracts with Russia exacerbates concerns about energy security. Canadian LNG  presents an opportunity for Europe to secure a clean and reliable alternative to Russian natural gas. However, the lack of export infrastructure and the absence of a long-term business case, according to the Prime Minister, have hindered Canada’s ability to promptly meet Europe’s natural gas needs.

 

So, what does this all mean and where to next?

 

Despite Canada’s prolonged project approval timelines, a significant opportunity remains to expand LNG production and supply gas to global markets, especially in light of the U.S. pausing the approval of new export licenses as it integrates climate considerations into its LNG export policy. This pause presents a compelling opportunity for Canada to capitalize on its geographic advantages, low production costs, and comparatively lower emissions profile to enhance its LNG export capacity.

 

Three key actions must occur for Canada to power progress and play a more impactful role in exporting LNG. Firstly, Canada needs to think big and increase its capacity. If Canada moves forward with its current slate of LNG facilities, Canadian LNG production could increase from 3.3 billion cubic meters annually in 2025 to 55.1 billion cubic meters annually by 2039. To make this happen, the regulatory process needs to be streamlined, learning from mechanisms like the “LNG Acceleration Law” instituted in Germany, reducing project timelines and costs, and getting facilities built and operating as quickly as possible. Finally, securing partnerships with Indigenous communities impacted by potential LNG expansion projects will be critical to ensure sustainable development that benefits all parties affected by a proposed project and reduces uncertainty.

 

By Dr. Lance Mortlock (Managing Partner, Energy & Resources, EY Canada), with support from Colton Cuckow

Commenti


bottom of page