Would-be Canadian liquefied natural gas (LNG) producers are in for a surprise if they think the pause in new export approvals in the United States will open up a bigger global market for Canadian gas, the Institute for Energy Economics and Financial Analysis (IEEFA) concludes in an analysis released Monday.
With a “massive increase in LNG export capacity” over the next few years expected to create a “global glut of LNG supply,” write Energy Finance Analyst Mark Kalegha and LNG/Gas Specialist Christopher Doleman, “Canadian LNG projects face an unstable future with increasing market risk.”
The new round of hype around Canadian LNG traces back to U.S. President Joe Biden’s late January decision to pause the approval process for new LNG export terminals and subject them to a climate test. At the time, veteran climate author Bill McKibben, founder of the Third Act climate justice group, called the announcement “the biggest thing a U.S. president has ever done to stand up to the fossil fuel industry.”
Less than a week later, the Globe and Mail reported that “Canada’s producers have an opportunity to fill the supply gap,” but were complaining that export infrastructure in British Columbia “isn’t up to the task.”
Rather than transporting Canadian gas 5,000 kilometres to export terminals on the U.S. Gulf Coast, “Canadians could be exporting our own natural gas at a fraction of the distance,” First Nations LNG Alliance CEO Karen Ogen said in a statement. “Canadians—and in particular, Indigenous Canadians—should be the ones to receive the rewards of training, jobs, and business opportunities that come with a thriving LNG industry.”
That same day, Calgary Herald columnist Chris Varcoe carried much the same message. “After standing on the sidelines for much of the past decade while the United States transformed itself into a global LNG powerhouse, Canada now has a monumental decision to make,” he wrote. “Does it also want to become a serious player in the global LNG game or be a small exporter to the world?”
“It’s not very often that you get a second chance on an opportunity,” Enbridge CEO Greg Ebel told Varcoe. “And I think this may perhaps bode extremely well for that second chance, from a policy and support perspective in Canada—if we take advantage of it.”
But IEEFA sees no advantage to take, with the world’s LNG supplies already set to increase 13% by 2026 and a global glut expected in the second half of this decade. That’s consistent with the International Energy Agency projecting peak global demand for all three fossil fuels by the end of this decade, and Carbon Tracker cautioning in late January that ‘“projections for oil and gas consumption present a bleak prospect for the sector, regardless of what the industry may suggest.”
“The U.S pause does not apply to existing or already approved facilities,” IEEF explains. “It remains the largest exporter of LNG in the world. With its current capacity of 12.3 billion cubic feet per day already projected to almost double by 2028, the United States will continue to produce an abundance of LNG to supply global markets. Other major suppliers, such as Qatar, plan to boost production and are currently building massive new projects. The LNG Canada project in Kitimat, B.C., set to come online in 2025, will be joined by projects in Mexico, the Republic of Congo, Mauritania, Russia, Australia, and Gabon.”
All of which translates into a “looming oversupply” that should give Canadian fossil producers second thoughts about touting an LNG boom.
By the time new Canadian LNG capacity could ramp up, IEEFA anticipates that demand in China will be driven down by the country’s phenomenal growth in renewable energy. Other markets in Asia are entering a structural decline, the report states, with imports down 8% last year in Japan, 5% in South Korea, and unsteady LNG prices and supplies prompting other developing economies in the region “to second-guess the role LNG can play in their future energy mix.”
In Europe, meanwhile, the pivot to energy efficiency and renewable energy following Russia’s invasion of Ukraine has driven down gas demand by 20% since 2022 and electricity demand by 6.4% below 2021 levels. With 18 of 27 EU countries breaking solar capacity milestones last year, and the continent expected to double its renewables capacity between 2022 and 2027, “Europe’s long-term LNG demand is now forecast to decline through at least 2030 and likely beyond,” IEEFA says. So “Canada’s attempt to develop a costly, long-term LNG infrastructure to address short-term market disruptions is imprudent and could very well be a pathway to stranded assets.”
Last week, Bloomberg News reported that the EU had so much surplus gas on hand that it was considering storing some of it in Ukraine, despite the obvious security risk. That was a far cry from the summer and fall of 2022 when Europe was scrambling for enough supplies to get through the winter, prompting overheated claims from some gas producers and their political allies about how quickly Canadian supplies could be sent overseas.
A scant 18 months later, “an oversupply and slowing demand mean an acceleration of Canadian LNG supply is not required,” IEEFA concludes.
“Advocates of Canadian LNG developments have exaggerated the impact of the U.S. permitting pause, claiming it provides an opportunity for Canadian exports,” the report adds. But “with a high share of uncontracted volumes, proposed Canadian projects are especially vulnerable. It makes little sense for Canadian industry to aggressively push more LNG into the ocean when new supply is not needed, demand prospects are dwindling, and buyers are unsure of their long-term needs.”
