Planned Canadian LNG Plants May Siphon Off Natural Gas Otherwise Exported to U.S.

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Written by Paul Wiseman for Industrial Info Resources (Sugar Land, Texas)--After years of delays, Canada's energy industry is finally seeing pipelines to its western seaports open, creating new export opportunities. As those new markets open up, many in the industry believe they will siphon off at least some of what used to be sent to the U.S. because there was nowhere else for it to go.

On the oil side, there is the opening of the Trans Mountain Pipeline expansion which, when fully open, will funnel 590,000 barrels per day (BBL/d) to British Columbia-based export facilities. The pipeline could eventually diminish oil flows to the U.S. For more information see May 1, 2024, article - Trans Mountain Pipeline Expansion Set to Open May 1.

This month for natural gas, LNG Canada (Calgary, Alberta), the nation's first liquefied natural gas (LNG) export platform, began its testing phase. Full commercial operation is slated for mid-year 2025. Located in Kitimat, British Columbia, the plant is expected to process as much 2 billion cubic feet of natural gas per day (Bcf/d). That's about 11% of current Canadian gas output. Subscribers to Industrial Info's Global Market Intelligence (GMI) Oil and Gas Project Database can click here for the project report.

Leading LNG Canada are five companies, led by Shell plc (NYSE:SHEL) (London, England) and joined by Japan's Mitsubishi Corporation (Tokyo), Malaysia state energy firm Petronas (Kuala Lumpur), and Korean Gas Corporation (KOGAS) (Daegu, South Korea).

At this moment, the additional capacity only relieves back pressure on Canadian gas supplies, as the nation produced a record 18.8 Bcf/d in December, according to the Canada Energy Regulator (CER). CER's 2023 outlook predicts that number will grow over the next few years as markets for the country's LNG expand.

U.S. Demand is Growing
A significant reduction in exports to the U.S. could affect gas supplies as demand simultaneously rises. Overall U.S. natural gas use--both for domestic consumption and for LNG export--has been on the rise. Domestically, natural gas consumption has risen by about 4% per year every year since 2018, said the U.S. Energy Information Administration (EIA), leading to all-time-record consumption of 88.8 Bcf/d in 2023. Retirement of coal plants for grid power generation is among the top reasons for that gain.

Of the 80.1 Bcf/d average delivered to consumers, 35.3 Bcf/d went to electric power consumers, 23.4 Bcf/d went to industrial use, 12.2 Bcf/d to residential use, and 9.0 Bcf/d to commercial customers including vehicle fuel users.

Also at record levels in 2023 were U.S. natural gas exports, averaging 20.8 Bcf/d. That number is 10% higher than the 2022 export levels. LNG accounts for more than half that amount, 11.9 Bcf/d, with pipeline exports to Canada (2.8 Bcf/d) and Mexico (6.1 Bcf/d) comprising the remainder. LNG exports rose by 12.1% over 2022 levels. Exports to Mexico have trended up except for a slight drop in 2022 compared to 2021. And exports to Canada were slightly up over recent trends.

Click on the image at right for a chart showing U.S. natural gas consumption and exports for 2019 through 2023.

Effects on U.S. LNG Exports
Industrial Info's Geoffrey S. Lakings noted that while Canada is the fifth-largest producer of natural gas, its new LNG terminals will not challenge the U.S.'s LNG export leadership. That top spot is, however, being challenged by second-place Qatar's surge in LNG terminals.

He added that Canada will have no West Coast export challenge from the U.S., as there are no LNG terminals in Washington, Oregon, or California. Canada's British Columbia terminals will give that nation much more direct access to Asia than the U.S. has--and the fact that companies from Japan, Korea, and Malaysia are in the new terminal's ownership cadre is telling in that regard.

But a flurry of new Canadian LNG ports could negatively affect the future of some U.S. plants currently held up by the Biden administration's pause on new permitting, said IIR's Jesus Davis. "If more Canadian projects advance during the moratorium, that could reduce the opportunities for U.S. projects to proceed, even after the pause is lifted," he pointed out.

There is some U.S. gas that could indeed flow to Asia, Davis said, through LNG terminals on Mexico's west coast. "Costa Azul and Mexico Pacific LNG terminals are currently under construction there," he said. Supplying gas to New Fortress Energy's (NASDAQ:NFE) (New York, New York) plant has approval, he added, as long as it does not send product to non-Free Trade Agreement (FTA) countries.

Beyond that, any further expansion there is on hold, Davis added, because of the U.S. Department of Energy's process required to approve any new U.S. pipelines to Mexico that would carry gas to LNG terminals.

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Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) platform helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking more than 200,000 current and future projects worth $17.8 trillion (USD).