Anticipation was high prior to the commencement of operations at LNG Canada with hopes of bolstering weak Canadian natural gas prices and accessing Asian markets.
However, the expected surge in prices has not materialized as of yet.
Commencing its export operations on Canada Day this year, LNG Canada has not led to a price spike. Recent data shows that the average Alberta benchmark natural gas price in July hit its lowest point since 1985, according to RBN Energy.
Being the largest private-sector investment in Canadian history, LNG Canada is forecasted to boost the country’s GDP by 0.4 per cent upon full operation. The project’s initial phase involves the export of liquefied natural gas (LNG) from two processing units, also known as “trains,” with a combined capacity of 14 million tonnes per year, as disclosed by LNG Canada on July 1.
Jeremy McCrea, BMO Capital Markets’ energy research managing director, highlighted a misalignment in expectations regarding the full ramp-up of LNG Canada. He explained that there was an oversupply of gas due to higher-than-anticipated production, causing a surplus as LNG Canada continues its ramp-up process.
Prices for Canadian natural gas hit a 40-year low in 2024, according to Statistics Canada. The agency attributed this to increased production, particularly in British Columbia, in anticipation of the LNG Canada project. This excess supply was exacerbated by reduced demand resulting from warm weather in North America.
Recent lower-than-expected natural gas prices have also been linked to pipeline maintenance activities in Western Canada, affecting the flow of gas out of the region. Companies such as Tourmaline Oil and Arc Resources highlighted pipeline maintenance as a temporary factor impacting prices during recent earnings calls, expecting an improvement in the latter half of the year coinciding with LNG Canada’s progress.
A spokesperson for LNG Canada indicated that initial operations have commenced with Train 1 and production will escalate with the involvement of Train 2, aiming for regular shipment schedules. The statement also mentioned an expectation of loading one export cargo every two days once full operations are achieved.
Once fully operational, LNG Canada plans to engage around 15 export tanker vessels monthly, according to a recent RBC investor note. Three vessels departed in July, with seven more expected to sail in August.
While the prolonged low prices of Canadian natural gas may benefit consumers by alleviating utility costs, Heather Exner-Pirot from the Macdonald-Laurier Institute explained that continued low prices will impact government revenues in provinces like British Columbia and Alberta, reliant on resource royalties.
Notably, British Columbia’s natural gas royalty revenue dropped by $82 million in the 2024-2025 fiscal year compared to the budget forecast due to diminished natural gas prices and revised royalty rates. The Alberta government plans to provide a fiscal update later in the year to assess the impact of oil and gas prices.
As of August 13, the average benchmark price for Canadian natural gas stood at $0.76 per gigajoule, with prices fluctuating from under $0.40 to over $0.90 per gigajoule this month, according to RBN Energy.
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