By the way, Canadian liberals hate LNG. Or they did.
Why Liquefied Natural Gas Expansion in Canada Is Not Worth the Risk
Summary
New liquefied natural gas (LNG) facilities will undermine Canada’s domestic and international climate commitments through increased upstream and midstream emissions and—more critically—by diverting scarce financial and clean energy resources toward fossil fuel production and away from more cost-efficient decarbonization efforts.
The possibility of coal-to-LNG switching abroad should not be used to justify the inevitable increase in domestic emissions associated with expanding LNG production. While proponents argue that LNG exports will decrease global emissions by replacing coal consumption overseas, this climate benefit is uncertain and often overstated, in part because of LNG’s potential to crowd out investment in renewable energy.
The economics for new LNG production are weakening, as demand is estimated to have already peaked in advanced economies such as Europe and South Korea; LNG demand growth in emerging Asian markets is also projected to slow.
By the time Canadian LNG from most new facilities reaches markets near the end of the decade, global LNG supply is expected to have already outpaced demand, deflating global prices. As a result, Canadian LNG projects may struggle to compete with cheaper and incumbent producers—such as Qatar and the United States—without substantial public subsidies.
To limit the risks to taxpayers, the economy, and the climate, Canadian governments should avoid issuing project approvals and export licences to new LNG projects while phasing out subsidies and other forms of public support for approved projects.
Introduction
Canada produces more natural gas than is necessary for domestic demand, with over 40% of production exported between January 2020 and July 2023. To support the expansion of export markets beyond the United States, there are several active projects and proposals to construct liquefaction facilities in Canada that would convert feedstock gas into liquefied natural gas (LNG) to be exported overseas. While some of Canada’s gas has recently been sold to operators of liquefaction terminals in the United States—indirectly expanding Canadian export markets—the proposed domestic terminals are intended to enable Canadian gas to be exported overseas directly.
Following an analysis of the most recent evidence, however, this brief concludes that plans to produce LNG in Canada carry excessive economic and environmental risks. Most prominently, Canadian LNG from most new facilities is at risk of entering the market during a global glut in supply, hampering the potential for export investments to be profitable and ultimately leaving investors at risk of losses from stranded assets. Meanwhile, excess LNG on the global market threatens to drive down prices and undercut the expansion of renewables abroad. Moreover, a Canadian LNG industry will come at the cost of increased domestic emissions that threaten to undermine Canada’s climate obligations. Accordingly, Canadian governments should limit exposure to such risks by refraining from issuing new construction and export permits while phasing out subsidies and other forms of financial support currently allocated to LNG projects.
Other countries are also beginning to acknowledge the risks of LNG expansion. Earlier this year, the Biden administration announced a pause on granting new LNG export licences to non-free trade agreement countries. The rationale was the need to better integrate economic and environmental risks into the approval process, following "an evolving understanding of the market need for LNG, the long-term supply of LNG, and the perilous impacts of methane on our planet." While this policy development in the United States will not directly affect Canadian producers, it does acknowledge the need to examine the overall costs and benefits of LNG expansion in a rapidly changing global market.
Reconsidering Canadian LNG Projects
Canada currently does not have any major LNG export facilities. However, eight projects are in various stages of consideration or construction, according to the federal government. Most of these are in British Columbia (BC), with one under consideration in Newfoundland and Labrador (see Table 1). West Coast LNG projects generally aim to supply Asian markets while the Newfoundland LNG projects would target sales to Europe. The largest and most advanced project is LNG Canada’s Phase 1, which is scheduled for completion in 2025. Woodfibre LNG, the only other project in Canada that has begun construction, is expected to be complete in 2027. Most other projects are scheduled for completion by or around 2030, though all are awaiting final investment decisions, environmental impact assessments, and/or export licences (Table 1). If approved, these pending LNG projects could have projected lifespans ranging from 20 to 60 years, depending on the project. As such, decisions on LNG expansion must be taken with a balanced view of their associated economic and environmental risks in the long term.
Why Liquefied Natural Gas Expansion in Canada Is Not Worth the Risk
Summary
New liquefied natural gas (LNG) facilities will undermine Canada’s domestic and international climate commitments through increased upstream and midstream emissions and—more critically—by diverting scarce financial and clean energy resources toward fossil fuel production and away from more cost-efficient decarbonization efforts.
The possibility of coal-to-LNG switching abroad should not be used to justify the inevitable increase in domestic emissions associated with expanding LNG production. While proponents argue that LNG exports will decrease global emissions by replacing coal consumption overseas, this climate benefit is uncertain and often overstated, in part because of LNG’s potential to crowd out investment in renewable energy.
The economics for new LNG production are weakening, as demand is estimated to have already peaked in advanced economies such as Europe and South Korea; LNG demand growth in emerging Asian markets is also projected to slow.
By the time Canadian LNG from most new facilities reaches markets near the end of the decade, global LNG supply is expected to have already outpaced demand, deflating global prices. As a result, Canadian LNG projects may struggle to compete with cheaper and incumbent producers—such as Qatar and the United States—without substantial public subsidies.
To limit the risks to taxpayers, the economy, and the climate, Canadian governments should avoid issuing project approvals and export licences to new LNG projects while phasing out subsidies and other forms of public support for approved projects.
Introduction
Canada produces more natural gas than is necessary for domestic demand, with over 40% of production exported between January 2020 and July 2023. To support the expansion of export markets beyond the United States, there are several active projects and proposals to construct liquefaction facilities in Canada that would convert feedstock gas into liquefied natural gas (LNG) to be exported overseas. While some of Canada’s gas has recently been sold to operators of liquefaction terminals in the United States—indirectly expanding Canadian export markets—the proposed domestic terminals are intended to enable Canadian gas to be exported overseas directly.
Following an analysis of the most recent evidence, however, this brief concludes that plans to produce LNG in Canada carry excessive economic and environmental risks. Most prominently, Canadian LNG from most new facilities is at risk of entering the market during a global glut in supply, hampering the potential for export investments to be profitable and ultimately leaving investors at risk of losses from stranded assets. Meanwhile, excess LNG on the global market threatens to drive down prices and undercut the expansion of renewables abroad. Moreover, a Canadian LNG industry will come at the cost of increased domestic emissions that threaten to undermine Canada’s climate obligations. Accordingly, Canadian governments should limit exposure to such risks by refraining from issuing new construction and export permits while phasing out subsidies and other forms of financial support currently allocated to LNG projects.
Other countries are also beginning to acknowledge the risks of LNG expansion. Earlier this year, the Biden administration announced a pause on granting new LNG export licences to non-free trade agreement countries. The rationale was the need to better integrate economic and environmental risks into the approval process, following "an evolving understanding of the market need for LNG, the long-term supply of LNG, and the perilous impacts of methane on our planet." While this policy development in the United States will not directly affect Canadian producers, it does acknowledge the need to examine the overall costs and benefits of LNG expansion in a rapidly changing global market.
Reconsidering Canadian LNG Projects
Canada currently does not have any major LNG export facilities. However, eight projects are in various stages of consideration or construction, according to the federal government. Most of these are in British Columbia (BC), with one under consideration in Newfoundland and Labrador (see Table 1). West Coast LNG projects generally aim to supply Asian markets while the Newfoundland LNG projects would target sales to Europe. The largest and most advanced project is LNG Canada’s Phase 1, which is scheduled for completion in 2025. Woodfibre LNG, the only other project in Canada that has begun construction, is expected to be complete in 2027. Most other projects are scheduled for completion by or around 2030, though all are awaiting final investment decisions, environmental impact assessments, and/or export licences (Table 1). If approved, these pending LNG projects could have projected lifespans ranging from 20 to 60 years, depending on the project. As such, decisions on LNG expansion must be taken with a balanced view of their associated economic and environmental risks in the long term.
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