Canada’s nascent liquefied natural gas (LNG) industry is arriving at a volatile time for global energy markets.
The Iran war has heightened concerns among Asian importers about the reliability of global supply routes.
“We import around 90 per cent of our total energy,” said Hideaki Ishii, deputy head of mission at the Japanese embassy in Ottawa.
“What is taking place in the Middle East … has a big impact on our energy and economic security.”
Energy trade with Canada, meanwhile, comes with “no geopolitical risks,” he added.
Ishii’s comments highlight the opportunities for Canada of bringing new LNG facilities online. But sources say Canada will need to act quickly to capitalize on the opportunities.
“We need to get some more from the North American Pacific Northwest,” said Heather Exner-Pirot, director of energy, natural resources and environment at the Macdonald-Laurier Institute.
Industry in infancy
Canada, with its vast natural gas reserves, has the potential to be a major LNG exporter. But it currently has just one LNG export facility in Kitimat, B.C., which came online last year. This project, LNG Canada, is Canada’s largest ever private sector infrastructure project.
Canada’s LNG development has lagged behind competitors.
The United States had nearly no LNG export capacity a decade ago. It is now the world’s largest exporter, with eight terminals primarily along the Gulf Coast.
Qatar is the world’s second largest LNG exporter. However, recent Iranian attacks knocked out nearly 20 per cent of its export capacity, and repairs are expected to take several years.
Australia, the third largest exporter, has 10 LNG export facilities.
Several additional Canadian projects are now moving forward.
Cedar LNG and Woodfibre LNG are under construction and slated to begin exporting in 2027 and 2028. Larger proposed projects — including LNG Canada Phase 2 and Ksi Lisims LNG — are awaiting final investment decisions.
Barrett Bingley, Asia regional director at the Asia Pacific Foundation of Canada, says the Iran war has served as a “wake-up call” for governments across Northeast Asia.
LNG shipments from Canada have the advantage of avoiding major maritime chokepoints such as the Strait of Hormuz, the Suez Canal and the Panama Canal.
“Canada’s West Coast goes straight to tidewater and then directly to the regasification plants in Taiwan, South Korea and Japan without going through any chokepoints,” Bingley said.
“That’s a huge advantage, and that should add a geopolitical premium to Canadian energy supplies.”
Another factor playing to Canada’s advantage is Australia is facing constraints in domestic production.
“Australian production is reaching its capacity,” said Exner-Pirot, of the Macdonald-Laurier Institute. The country is under mounting pressure to reserve more gas for Australian consumers amidst rising energy prices.
At present, U.S. LNG comes with challenges relative to Canadian exports. The country’s LNG exports are typically exported from the Atlantic coast, meaning shipments must pass through the Panama Canal or take the long journey below Africa to Asia.
Competition on the coast
At present, the U.S. does not have material LNG exports from the Pacific coast. However, that is set to change.
In Alaska, a multibillion-dollar LNG export facility is slated to come online in the early 2030s.
The project, called Alaska LNG, would transport natural gas from the state’s northern region through a roughly 1,300-kilometre pipeline to an LNG export facility in Nikiski, near the city of Anchorage.
The facility is anticipated to export about 3.5 billion cubic feet of gas a day. For context, that is approximately the same export capacity of LNG Canada and three of the Canadian LNG facilities that are expected to become operational over the next five years.
Experts say it matters when Canada’s new export capacity comes online.
“ Canada has a real opportunity here, but it needs to move,” said Bingley.
“If that Alaska project comes online before the next couple of major Canadian projects, we’ve got a problem.”
LNG purchases are often locked in through long-term contracts. If Alaska LNG secures those contracts first, it could lock in a large share of available Asian demand and make it harder for Canadian projects to secure LNG buyers, says Bingley.
Canada still has a potential sequencing advantage, notes Exner-Pirot, since several Canadian projects are already approved and closer to construction.
She is more sanguine about the risk of competition from Alaska. “I don’t think it’s zero-sum,” she added, noting that growing demand in Asia could support multiple North American suppliers.
For its part, the federal government says it has referred both LNG Canada Phase 2 and Ksi Lisims to Ottawa’s Major Projects Office, an agency tasked with accelerating the development of projects deemed in the national interest. Neither of these projects have yet been fully approved.
Exner-Pirot agrees that Canada must move quickly if it wants to capture the opportunity.
“Energy is our superpower,” Exner-Pirot said. “But our kryptonite is complacency.”
