Canada’s first liquified natural gas (LNG) export facility will begin operating this summer. Several other Canadian LNG projects are slated to begin operating in the next five years.
In total, the LNG export projects currently under development represent $100 billion in capital investment and would allow Canadian gas exports to reach global markets.
Interestingly, Canadian companies do not control most of these projects. Rather, foreign energy giants and governments are leading the way in investment and ownership.
“One is tempted to say that maybe Canadian companies know too much to bother taking the risk,” said Vancouver-based economist Jock Finlayson, of the Fraser Institute.
“They’d rather take the capital and deploy it in the U.S. or somewhere else.”
First of many
At present, Canada only exports its natural gas to the United States through pipelines. In order for it to be sent further afield, natural gas must be cooled to -162 degrees Celsius, condensing the gas into a liquid. The liquid is then loaded onto ships destined for international markets.
With a price tag of $40 billion, LNG Canada is the largest private sector investment in Canadian history.
The project, located in Kitimat, B.C., is owned by a consortium of foreign companies: British-headquartered Shell (40%), PETRONAS of Malaysia (25%), Mitsubishi of Japan (15%), PetroChina (15%) and Korea Gas (5%).
LNG Canada first received regulatory approval in 2015. Now, 10 years on, Canada will at last export LNG, joining countries such as the U.S., Australia, Qatar and Russia in doing so.
In 2015, the U.S. also had zero LNG export capacity. Today, it has 27 operational facilities and is the world’s largest exporter.
LNG Canada joins a long list of Canadian mega-projects beset by high costs, long timelines, regulatory uncertainty and shifting political winds — issues which contribute to investment uncertainty.
Finlayson, who has studied the resource industry for decades, recalls a conversation with a frustrated Japanese energy investor.
“He couldn’t figure out what the government actually wanted to achieve. And that’s been characteristic of the whole story about Canadian resource development in the last 10 or 15 years.”
And yet, it is mostly foreign investors that have been willing to accept higher-risk undertakings in Canada. It may be because they are more willing — or better positioned — to take on the challenges.
“It may also be access to low-cost capital,” Finlayson said.
Companies such as PETRONAS and PetroChina are state-owned enterprises, giving them access to lower borrowing rates and the ability to consider non-economic factors, such as energy security and stability.
“A lot of the North American-based companies are less patient,” says Finlayson. “They want to get a return … they want capital discipline, and they want to see paybacks in relatively short cycles. These kinds of multi, multi, multi billion-dollar complex production projects don’t lend themselves to that kind of business model.”
Others, such as publicly traded Shell, have the advantage of size.
“It’s always been my view that if Shell had not been the most important part of that [LNG Canada] consortium … one really wonders whether it ever would have seen the light of day,” Finlayson said.
“Shell Global strikes me as a company that has more patience and greater sophistication in terms of how they deal with very complex political and economic environments.”
For Canadian companies, the uncertainty risk may be too great. Having others assume that risk is prudent and allows them to more comfortably participate in the upside of LNG development in familiar areas, such as natural gas extraction in B.C. and Alberta.
“Canadian companies can concentrate at the upstream — supplying the actual resource, which they do very well and is a business they understand.”
| Project | Size (MTPA) | Owners | Capital ($C) | Status |
|---|---|---|---|---|
| LNG Canada Phase I | 14 MTPA | Shell Canada (40%); PETRONAS (25%); Mitsubishi (15%); Korea Gas (5%); PetroChina (15%) | $40 billion | First export:July 2025 |
| LNG Canada Phase II | 14 MTPA | Shell Canada (40%); PETRONAS (25%); Mitsubishi (15%); Korea Gas (5%); PetroChina (15%) | $30 billion | FID pending |
| Ksi Lisims LNG | 12 MTPA | Nisga’a Lismis Nation Western LNG (US) Rockies LNG (Canada) | $10 billion | Proposed Planned 2029 |
| Cedar LNG | 3 MTPA | Haisla Nation (50.1%) Pembina Pipeline (49.9%) | $6 billion | Construction Production 2028 |
| Woodfibre LNG | 2.1 MTPA | Pacific Energy Corp. (Singapore) (70%) Enbridge (30%) | $7 billion | Construction Production 2027 |
| Tilbury Island Phase II | 3 MTPA | FortisBC | $3.5 billion | Regulatory review |
Indigenous participation
Indigenous communities are among the Canadian groups that have taken equity positions in Canadian LNG projects, including the Cedar LNG project in Kitimat and Ksi Lisims LNG project on Pearse Island, B.C.
Karen Ogen is chief executive of the First Nations LNG Alliance, a collective of First Nations participating in LNG development in B.C. She is optimistic about the potential of Canadian LNG projects.
“I see more opportunities than risks buying into these major projects if they’re done right and correctly with First Nations, government and industry,” she said.
She also spoke positively about working with foreign-owned companies.
“We haven’t run into any issues with foreign companies or [foreign] nations owning LNG Canada. If anything, LNG Canada’s representatives have been very good in terms of their relationship building with First Nations.”
For First Nations keen to participate, financing can be a challenge.
“One of the issues that First Nations have run into — especially those Nations under the Indian Act — is access to capital. It has been a major hurdle,” she said.
The federal government and some provinces have established programs to facilitate access. Federally, there is the First Nations Finance Authority, Export Development Canada and the Canada Infrastructure Bank. Provincially, there is the First Nations Equity Financing Framework in B.C., and the Alberta Indigenous Opportunities Corporation.
Global outlook
The global LNG trade reached 404 million tonnes per annum in 2023. It is expected to increase by more than 50 per cent by 2040, driven by Asian countries switching from coal to natural gas and general economic growth.
Additional LNG projects would be needed to meet this demand.
“Given the fact that Canada needs to diversify, needs to start exporting our natural resources to these [foreign] countries so that we can stand on our own two feet and not have to rely on the U.S … it’s not only going to be good for our country, it’s going to be good for [other counties], it’s going to be good for Indigenous people,” said Ogen.
New markets for Canadian natural gas will also be good for governments.
In B.C., where energy has already surpassed forestry as the most valuable export, the government is counting on the windfall. Last year, provincial gas royalties totalled nearly $684 million. By 2027, they are forecasted to be $1.43 billion — a more than twofold increase in just three years that is directly attributed to the demands of LNG projects.
For producers, access to new markets will result in higher prices.
According to Finlayson, “the people in the industry, the capitalists, the people who need to make a risk-adjusted return, they’re the ones that are best positioned to decide whether it makes sense to advance more of these [projects] on the west coast of Canada.
“I do think the political and policy backdrop for LNG development is shifting from where it was four or five years ago … it’s become more supportive.”
Ogen hopes he is right.
“I see a lot of potential for Indigenous people to start to prosper. To manage prosperity instead of poverty. That’s what’s on the horizon for me.”
Ten years ago, Canada missed out on a wave of LNG development. The country may get a rare second chance.
Justin Trudeau told Germany and Japan that we “weren’t in the business ” of selling our LNG to them. Such folly seems outrageous now that we have to scramble to find alternate markets with the US seriously trying to destroy our economy so they can take over. Hopefully it is not too late to change all that.