Canada was late to the LNG party – that’s finally starting to change

A decade ago, the United States exported almost no liquefied natural gas. The world’s biggest LNG exporter was Qatar. The U.S., with barely any capacity to ship gas overseas, was responsible for around one-1000th of global LNG exports.

That changed quickly. Massive private investments in the rapid build-out of LNG terminals and pipelines turned the U.S. into the world’s largest exporter, almost overnight. Between 2013 and 2023, American LNG exports increased by more than 100,000 per cent. S&P Global estimates that over the next 15 years, U.S. LNG will generate US$1.3-trillion in economic activity and US$166-billion in federal and state tax revenue.

Australia also quadrupled LNG exports over the same 10-year period. By 2024, it was the world’s second-largest exporter.

And Canada? Despite being the world’s fifth-largest producer of natural gas – ahead of both Qatar and Australia – Canada was late to the LNG party. While the U.S. was going from near-zero to the top of the charts, Canadian LNG exports went from zero to … zero.

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That is finally starting to change. The LNG Canada facility in Kitimat, B.C., began shipping cargoes earlier this year. Several other such projects are at various stages of development. And in September, when Prime Minister Mark Carney announced five major projects prioritized for regulatory fast-tracking, phase two of LNG Canada was the first item on his list.

The good news for Canada is that there remains considerable demand for natural gas in Europe and Asia. That demand is reflected in high prices.

The debate over whether Canada should build more oil pipelines to the coasts is going to consume a lot of political oxygen in the coming months. It’s a nudge this country needs, because the last pipeline – TMX, the Trans Mountain pipeline expansion – has been a winner. Ottawa had to buy it and build it, and it suffered significant delays and cost overruns, but the pipeline is delivering hefty returns.

It helped to close the gap between Canadian oil prices and the West Texas Intermediate benchmark. The result has been an economic boost – the Bank of Canada estimated that the opening of TMX permanently added a quarter percentage point to gross domestic product – along with a cash windfall for Alberta and the feds.

Alberta Central chief economist Charles St-Arnaud recently estimated that the narrowing of the price gap through TMX raised oil industry revenues by $13-billion in the first year of operation. It also delivered an extra $4.4-billion in royalties to Alberta, along with an extra $1-billion in corporate taxes to the province and $2-billion to Ottawa.

Canada may be in a position to do something similar with natural gas. The gap between Canadian and U.S. gas prices is wide and the gap with global prices is vast. Reducing it would produce returns for the Canadian economy, along with a pile of new revenues for Alberta, Saskatchewan, British Columbia and the federal government.

Though Canada still has only one working LNG terminal, this country is nevertheless the world’s fifth-largest gas exporter. But until recently, the only place our exports could go was to the U.S.

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Leaving aside the now omnipresent concern about excessive reliance on the American market, this is a problem because gas prices on this continent are far below international prices. And North America’s low gas prices are lowest in Canada.

Late last month, Canadian spot prices even went negative. If you wanted to buy gas, the seller would have had to pay you.

That’s a rare situation, but a gap between Canadian prices and the U.S. Henry Hub benchmark is not. Earlier this week, when the AECO hub Western Canadian price was less than zero, the U.S. Henry Hub price was more than US$3. European and Asian benchmark prices were around US$11.

The yawning chasm between global and North American prices is long-standing. It’s the reason behind all that U.S. investment in turning gas into LNG, loading it on ships and sending it across the oceans, where it will fetch a much higher price.

Building a new oil pipeline comes with political challenges. B.C. Premier David Eby has shown no eagerness for a new route to the Pacific, and there’s significant Indigenous opposition in his province. In contrast, Mr. Eby has become an enthusiastic cheerleader for more LNG capacity on the West Coast, and he has quite a bit of Indigenous support. Because B.C. is a major gas producer, higher gas prices would benefit provincial coffers in Alberta and B.C. (and to a lesser degree, Saskatchewan), as well as in Ottawa.

I’m not here to knock the idea of another oil pipeline. But don’t ignore the opportunity in gas – which risks getting less attention precisely because it’s so much less politically fraught.