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Market Snapshot: Canadian LNG Projects Face a Competitive Global Market
Release date: 2015-03-05
According to BG Group, global deliveries of liquefied natural gas, or LNG, reached 32 billion cubic feet per day in 2013. Despite producing a significant amount of natural gas, North America plays a minimal role in the global LNG trade. The only existing liquefaction terminal in North America that exports LNG is located in Alaska and was constructed in 1969. Several terminals exist with the capability to import LNG but are utilized at very low levels due to abundant natural gas supplies and low prices in North America.
However, these abundant supplies and low prices have spurred dozens of proposals for LNG export projects in North America. By the end of 2014, applications to export LNG totaled approximately 40 billion cubic feet per day in the U.S. and 48 billion cubic feet per day in Canada. Nine LNG export licences have been issued in Canada for a total of 20.8 billion cubic feet per day. In comparison, Canadian gas production was approximately 14.5 billion cubic feet per day in 2014.
As noted in a recent decision issued by the National Energy Board [Filing A65596], the LNG export licence applications submitted in Canada represent a significant volume of natural gas exports. The Board also noted that projects compete for a limited global market and face numerous development and construction challenges. As a result, it is unlikely that all LNG export licences issued by the Board will be used or used to their full allowance. Factors influencing the competitiveness of liquefaction projects include distance to gas reserves, availability of the existing infrastructure, distance to markets, construction and labour costs, geopolitical factors, financing and timing.
Figure Sources and Description
Sources: International Gas Union World LNG Report, U.S. Department of Energy, National Energy Board, BP Energy Outlook 2035 and various press releases. The volumes associated with projects not yet under-construction are shown starting in 2020 for illustrative purposes only.
Description: This layered cake chart depicts existing and under-construction natural gas liquefaction capacity, globally, from 2013 to 2035. Existing capacity is approximately 40 billion cubic feet per day. Under-construction capacity is stacked on the existing capacity and grows from zero in 2013 to 20 billion cubic feet per day in 2019, after which it remains flat to 2035. Starting in 2020, projects that are not under-construction in Canada (those with approved and pending NEB licences) and the U.S. are layered on top of existing and under-construction export capacity. Proposed Canadian projects with approved licences represent approximately 20 billion cubic feet per day, Canadian projects with licences pending total approximately 27 billion cubic feet per day and proposed U.S. projects total nearly 36 billion cubic feet per day. Combined, global existing and under-construction capacity and proposed projects in just the U.S. and Canada total more than 140 billion cubic feet per day in 2035.
The figure also depicts projected global LNG demand as a line overlaying the liquefaction capacity volumes. Global demand grows robustly from 32 billion cubic feet per day in 2013 to over 81 billion cubic feet per day in 2035. Projected demand surpasses combined existing and under-construction capacity in 2028 at approximately 58 billion cubic feet per day.
The above figure illustrates the competitiveness of the global LNG market. It compares the volume of existing and under-construction global capacity as well as proposed liquefaction capacity in just Canada and the U.S. to the forecasted demand in the global LNG market. BP forecasts that LNG trade will grow at a robust rate of 4.3 per cent, reaching 81 billion cubic feet per day of demand in 2035. According to the International Gas Union and recent announcements, 20 billion cubic feet per day of additional liquefaction capacity is already under-construction around the world, including projects in the U.S. which have recently broken ground. Once these facilities are in operation, the forecasted demand above existing liquefaction capacity would be approximately 22 billion cubic feet per day by 2035, compared to over 80 billion cubic feet per day of proposed but not yet under-construction capacity in North America alone.
There are several caveats to consider in this comparison of forecast demand and proposed LNG export capacity. For instance, actual demand growth could vary. Also, utilization of global liquefaction capacity is between 80 and 90 per cent, suggesting that capacity will likely be somewhat higher than demand going forward. In addition, some existing capacity will likely retire by 2035. On the other hand, although North American projects represent the majority of recent proposals, they could face additional competition from projects in other regions of the world such as Russia and East Africa.
The number of proposals in North America highlights the interest in LNG exports. Currently four projects in North America are under construction. These projects, all located in the U.S., include Sabine Pass, Cameron LNG, Freeport LNG and Cove Point which together will have the capacity to export over 6 billion cubic feet per day of natural gas. None of the Canadian projects have reached this stage of development. Recently Pacific Northwest LNG and Prince Rupert LNG have delayed final investment decisions that were expected in 2014.
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