Canada’s cheap and abundant natural gas drives hope of petchem export, building boom

Canada is rich in natural gas and prices are at all-time lows, just when demand is escalating in Asia and India; pushing the export and construction potential the continent holds for the petrochemical industry closer to reality.

LNG Canada posted on Twitter: "The first barge is safely offloaded from the Transhelf Heavy lift vessel in a beautiful Kitimat harbour. Four more to go."

After years of delays, many analysts are predicting things are at last moving forward in British Columbia (B.C.) where natural gas resources are in abundance and a new fiscal framework aims to put liquified natural gas (LNG) projects on the same playing field as other industrial projects.

LNG is natural gas that has been cooled down to liquid form for ease and safety of non-pressurized storage or transport to ship.

“There is a large LNG opportunity in Canada for three big reasons: (1) we produce a lot of natural gas and we can produce even more natural gas in the future, and (2) pipeline accessible markets (i.e., domestic and the U.S.) do not need all the natural gas we produce, but (3) global markets (e.g., Asia) will increasingly demand more and more natural gas,” said Colleen Collins, Vice President of Canada West Foundation.

Natural Gas Resources

Canada produces more natural gas than it consumes at around 4 billion cubic feet/day, according to the Energy Information Administration (EIA).

In the past, the country exported excess supply to the U.S. but the natural gas boom in the U.S. has reduced the U.S.’s appetite for imported natural gas.

In the past decade, the U.S. has gone from importing nearly 10,000 BcF/year to producing almost exactly as much natural gas is consumed.

The result has been a collapse in Canadian natural gas prices as supply has outpaced demand, the Canada West Foundation said.

The excess supply has depressed natural gas prices in Canada.

Demand and Pricing

The U.S. began exporting LNG in February 2016, when Cheniere brought online its 1.4 BcF/day Sabine Pass export facility in Louisiana.

A major change in the LNG demand outlook happened soon after as China began importing more LNG to reduce coal burn in its fight against pollution.

China has been the third-biggest importer of U.S. LNG so far in 2018, behind South Korea and Mexico, according to January-July figures from LNG Edge.

Demand in Asia continues to surge as low U.S. LNG prices encourage buyers to switch from coal, according to the U.S.-China Economic and Security Review.

Right now, there is a huge natural gas price difference between Canada and Asian markets such as Japan.

Recent prices had Japan LNG near $11/MMBtu while prices were less than $1/MMBTu in Alberta and B.C., according to the Canada West Foundation.

Demand for LNG grew by roughly 10% or 29 million tonnes to 293 million tonnes in 2017 as more economies try to transition away from coal-fired power generation and use cleaner-burning natural gas as a substitute, Shell said in its February 2018 LNG Outlook.


Looking ahead, Shell is convinced that there could be a 275 million tonne supply shortage beginning in 2020.

“As much as $200 billion in new investments will be needed to build liquefaction plants around the world as demand “has continued to defy expectations,” according to Shell.

Several LNG plants were planned during the last LNG rush, but many were cancelled. The collapses in energy prices in 2014 and concern that the U.S. would be oversupplied slowed projects for a while.

Pacific Northwest LNG, Aurora and Woodside project proposals were among the cancelled projects.

“Canadian projects require developing greenfield plants and pipelines, as well as getting regulatory approvals from the indigenous First Nations communities,” Liao said.

“When global crude oil prices plunged in 2015, the Canadian greenfield projects did not look as favorable compared with other projects globally, and some of the development efforts stalled or were cancelled,” Liao said.


More than $88 billion in LNG projects are currently planned, being built or in operation across the U.S., according to Industrial Information Resources (Industrial Info).

Canada’s only operational LNG terminal is Canaport LNG’s regasification import terminal located in Saint John, New Brunswick.

Twenty LNG export facilities have been proposed in Canada. 14 in British Columbia, three in Quebec and three in Nova Scotia representing a total proposed export capacity of 257 million tonnes/year of LNG.

While U.S. LNG export capacity is concentrating on the East Coast and Gulf of Mexico coastline, projects such as LNG Canada envision a Pacific LNG port, potentially giving that project an advantage over its U.S. competitors for the major East Asian demand growth areas.


Fluctuating and uncertain market conditions or uncontrollable and can always drive or scare away LNG investment, but things that can and should be controlled are the approval process, the Canada West Foundation explained.

“A major thing that can scare away investment and is controllable from a policy perspective, is overly burdensome, uncertain, and long approval processes for LNG facilities and related infrastructure,” the Foundation said.

Canadian projects require developing greenfield plants and pipelines, as well as getting regulatory approvals from the indigenous First Nations communities, Liao explained.

“When these regulatory processes drag on for years and years, it only increases the probability that what were once viable Canadian LNG projects will become unviable as market conditions change and other countries beat us to the punch," Collins said.

Government support

The British Columbia (B.C.) government overhauled the fiscal framework for the LNG industry in March 2018.

The province will now provide a provincial sales tax (PST) exemption on construction costs of any LNG facility. The government is projecting that would be a $6-billion rebate for LNG Canada, compared to the framework designed by the previous provincial government.

The new conditions and tax incentives put natural gas development on a level playing field with other industrial sectors, accessing the same fiscal policies and working within the same overall B.C. framework to achieve greenhouse gas (GHG) reductions.

“The LNG Canada proposal has the potential to earn tens of billions of dollars and create thousands of jobs for British Columbians over the life of the project,” B.C. Premier John Horgan said in a news release. “It’s a private-sector investment that could benefit our province for decades to come.”

Download Petrochemical Update’s comprehensive outlook for Canada LNG projects and opportunities here

By Heather Doyle