Canada comes late to LNG; projects and prospects mixed
Canada has abundant natural gas resources. Concentrated in the provinces of Alberta and British Columbia, the total resource size is approximately 30.8 Tm3 (1.087 Tft3). The Montney formation accounts for 36% of Canada’s total natural gas resources. Fig. 1 shows the shale and tight gas distribution across western Canada.
The shale boom in the US has turned Canada’s southern neighbor into a major exporter of natural gas and LNG. Although gas exports from the US have increased, Canada’s exports have remained the same or declined. Historically, Canada exported nearly all of its excess natural gas to the US; however, due to the shale gas boom, the US no longer needs large quantities of Canadian natural gas. To offset this ﬁnancial hit, Canada announced more than two dozen LNG export terminal projects several years ago. Unfortunately, the country has seen very little capacity built.
Questions that arise from this seemingly premature planning include: What is the present state of the LNG sector in Canada? What projects are under development/in process/planned? What is the likelihood of completion of any of these projects? What are the key factors and outlooks for the future of Canada’s LNG industry?
Canada’s natural gas/LNG industry background. Canada has always been a net exporter of natural gas, with nearly all exports sent via pipeline to the US. Canada’s gas reserves are substantial. It is the world’s fifth-largest producer of natural gas, with a 300-yr supply, based on present usage. However, the market is changing, with a major shift over the past 10 yr because of increasing production in the US—Canada’s primary customer.
Due to technological advances like horizontal drilling and hydraulic fracturing (fracing), the US has increased its own production significantly. According to the US Energy Information Administration (EIA), the US has been the world’s leading gas producer since 2011. This huge increase in production has led to low natural gas prices in North America and a decline in Canadian gas exports.
Existing/proposed projects. Canada has one existing LNG import terminal, located in the New Brunswick maritime province. The Canaport LNG facility began operation in 2009 and has a capacity of 1.2 Bft3 (28 MMm3d). Canaport’s owners originally intended to convert the facility into an export facility, but the project is on hold at present.
Canada’s National Energy Board (NEB) is responsible for authorizing gas imports and exports from Canada, including LNG. Since 2010, the board has approved 35 proposed LNG export projects. Fig. 2 shows the locations of proposed LNG terminals in western (left) and eastern (right) Canada.
In western Canada, three projects have received regulatory approval: Pacific Northwest, Kitimat LNG and Woodfibre LNG. In Quebec, one project has received approval to proceed but remains stalled. On the East Coast, one project has received approval, but it is stalled pending available gas supply.
In late 2018, ExxonMobil and its Canadian partner, Imperial Oil, decided to shelve their planned, $25-B LNG facility in Tuck Inlet in the Prince Rupert area on British Columbia’s north coast.
More projects have been proposed for western Canada than in any other area of the country, since there is a significant supply of natural gas and the markets for LNG are concentrated in Asia. Due to the very high costs of these greenfield projects, Canadian LNG producers have sought investment from potential customers in Japan, China, Korea, India and other countries in the region.
In British Columbia, total active LNG export capacity has decreased from approximately 250 MMtpy in 2016 to approximately 157 MMtpy in 2018. This capacity decline represents a decrease in CAPEX from more than $170 B to just over $100 B. Although most of these projects are at a standstill, a few projects are progressing, as discussed in the following sections.
LNG Canada’s Kitimat LNG. In October 2018, a $40-B pipeline and LNG plant was approved by the Kitimat LNG shareholders. At the announcement press conference, Canadian Prime Minister Justin Trudeau called it the “largest single private-sector investment in Canadian history.”
Shareholders include Royal Dutch Shell, Mitsubishi Corp., Petronas, PetroChina and Korean Gas Corp. The terminal will have two trains, with a total installed capacity of 11 MMtpy. Kitimat’s partners are committed to producing LNG by 2023. The project has received the necessary approvals for groundbreaking, including those from the NEB, the Department of Fisheries and Oceans, BC Hydro and the 25 First Nations groups.
Woodfibre LNG. The Woodfibre LNG project is located on the former site of a pulp mill, near Squamish on Howe Sound in British Columbia. The project’s cost is estimated at $1.4 B–$1.8 B. Total CAPEX is lower, due to roads and a deepwater port facility already in place. Woodfibre holds an NEB license for the export of 2.1 MMtpy of LNG over a 40-yr period.
Canadian east coast. Four LNG export projects are active on the country’s east coast. These projects include:
- Goldboro LNG. Pieridae Energy Ltd. plans to build a $10-B, 10-MMtpy export terminal in Guysborough, Nova Scotia. An FID on the project is expected to be made in early to mid-2019.
- AC LNG. H-Energy is planning a 13.5-MMtpy export terminal in Nova Scotia. If built, Train 1 (Phase 1), with a capacity of 4.5 MMtpy, is scheduled to be completed in 4Q 2023.
- Bear Head LNG. A subsidiary of LNG Ltd., Bear Head LNG is developing a four-train, 8-MMtpy LNG export terminal in Richmond, Nova Scotia. The $5-B terminal is scheduled to begin operations in 2022/2023.
- Energie Saguenay LNG. The $7-B, 11-MMtpy terminal is scheduled to start up in 2024.
- According to Natural Resources Canada, two additional east coast projects have applied for export licenses—Natural Gas Tugliq Quebec Inc. and Stolt LNGaz. At the time of publication, the Tugliq Quebec project was applying for an export license, and the Stolt LNGaz project has seen no movement.
Market developments. The most significant market development impacting Canada’s LNG future is the continued depressed price of natural gas in Asia. Fig. 3 shows how the price of natural gas has been trending lower since the market crash of 2008.
By the end of 2018, natural gas prices reached historic lows. Petronas, one of the partners in the LNG Canada Kitimat project, has closed all but one of its drilling projects and has throttled back its production by 50 MMft3d–200 MMft3d.
Infrastructure development. Most of Canada’s LNG projects are greenfield. This scenario requires significant infrastructure development costs. All construction materials must be brought to the sites, many of which are in remote areas. Roads must be built before materials can be delivered, and, in some cases, onsite housing must be built for workers.
The Woodfibre LNG project is a brownfield site that came with its own set of complications. Tons of creosoted piles, woodchips, slash and other waste from the former pulp mill required removal, along with abandoned equipment and machines. In addition, a green zone needed to be developed around Mill Creek, which runs through the project site.
One of Canada’s advantages in LNG production is that the natural gas transmission infrastructure (pipelines, trucks, railcars, etc.) is well developed and mature. LNG facilities can be located at the terminus of existing pipelines, rather than requiring the construction of completely new infrastructure.
Political issues. The politics of LNG in Canada are complicated. Responsibility for oversight of natural resources, including natural gas, is split between the provincial governments and the federal government. Canada is a signatory of the Paris Climate Agreement and is theoretically aligned with movements to reduce greenhouse gas emissions, but differences abound.
For example, in British Columbia, the 2017 election brought the New Democratic Party (NDP) back into office, in alliance with the Green Party. Where the Liberal Party had been aggressively in favor of a British Columbia LNG industry, the Green Party was not. John Horgan, the provincial premier, believes that LNG is a transitional fuel between coal and renewables. LNG projects are also investment-heavy and provide income and jobs for significant numbers of British Columbia residents.
In 2018, Prime Minister Trudeau and Premier Horgan both supported the LNG Canada project at Kitimat. Andrew Weaver, leader of the Green Party in the British Columbia parliament, disapproved of the NDP’s turnaround position.
“I am deeply disappointed that the NDP minority government’s tax giveaway has resulted in the country’s single-biggest source of emissions receiving an FID,” said Weaver.
Environmental activists have moved to combat the increase in LNG projects on the grounds that they are major polluters with large carbon footprints.
Environmental factors. Many environmental factors common to industrial plants are problematic in LNG projects, over and above emissions issues. The Pacific Northwest LNG project was canceled in 2017, with the project developers citing the sudden decline in the price of natural gas in Asia. Just as important to the project’s eventual demise, however, was the environmental pushback. Protesters camped at the site. This made it difficult to do work onsite without police protection. Environmentalists sued over every facet of the project, including an appeals court win that stalled the pipeline from the Montney gas field to the plant.
During this time, similar projects in the US were nearing completion and getting ready to ship LNG. This competition, coupled with the collapse of Asian natural gas prices, has caused most LNG projects in Canada to be scrapped or put on indefinite hold.
The rights of Canada’s First Nations are also a factor in the projects slowdown. Kitimat is located on land belonging to the Haisla Nation, so its development required agreement from more than 20 First Nations tribal councils. The First Nations are divided over the project.
Woodfibre LNG is located on Squamish land. The Squamish participated heavily in the environmental impact process, leading the project to choose air cooling and electricity to run the plant instead of water cooling and natural gas fuel. The Squamish gave permission for the plant’s construction in 2015 after the environmental impact process was concluded.
Outlook for Canadian LNG. The Canadian natural gas industry was designed to feed large quantities of gas to one large customer, the US. This lack of market diversity caused problems, but potential customers in Asia appeared to be a way out of the single-customer conundrum.
However, due to the persistent environmental and regulatory issues faced by potential LNG projects in Canada, LNG plants in the US are coming online faster than the Canadian projects, which are still in the groundbreaking stage.
In addition, new technologies for fracing and horizontal drilling have made it possible for the US to become the largest exporter of natural gas in the world, with a concomitant decrease in the trade value of Canadian natural gas.
Even though two projects—LNG Canada’s Kitimat LNG and Woodfibre LNG—have received approvals and are in the groundbreaking stage, the future development of Canada’s LNG sector is uncertain. The region has vast potential to become a global leader in LNG trade, but government delays, public opposition, infrastructure constraints, First Nations negotiations and lack of funding have hampered the country’s LNG industry from realizing its full potential. GP