The Long Run - The LNG Canada Project Will Impact Gas Markets, But Not Soon Enough

The final investment decisions by Royal Dutch Shell and its partners in the LNG Canada liquefaction and export project in British Columbia are a long-term boon to Western Canadian natural gas producers and to TransCanada, which now can proceed with its planned Coastal GasLink pipeline across the full breadth of BC. But the LNG Canada facility in Kitimat and the new 420-mile, 2.1-Bcf/d pipe won’t come online until 2023 — an eternity for producers in the region’s Montney and Duvernay shale plays, who through much of 2018 have been enduring profit-crushing price discounts for their gas relative to Henry Hub. Today, we consider the largest North American liquefaction/LNG export project to be sanctioned in several years, and why BC and Alberta producers wish it were coming online much sooner.

Exporting natural gas to Asia and other global markets as LNG has been a dream and a goal for producers in the Western Canadian Sedimentary Basin (WCSB) ever since it became clear earlier this decade that the U.S. — which had been Canada’s only gas-export customer — was going to meet an increasing share of its own gas needs. Liquefaction/LNG export terminals along the BC coast would make perfect sense, the proponents of such projects asserted, noting that LNG-laden vessels sailing from BC could reach key Asian markets in half the time it would take to deliver LNG from the U.S. Gulf Coast — and they wouldn’t have to pay hefty Panama Canal tolls either.

The challenges that WCSB producers have faced in the intervening years as production growth in the Marcellus/Utica, the Permian and other U.S. plays squeezed them out of their traditional markets (the Northeast, the Midwest, Eastern Canada etc.) have been a frequent topic in the RBN blogosphere (see Montney’s Python, Don’t Do Me Like That and On the Border). So have the multitude of Canadian liquefaction/LNG export projects that have been proposed, most of them along the BC coast (and relatively near WCSB production areas) but some as far away as Nova Scotia (see Slip Sliding Away, One Way or Another and So Far Away).