Canada's New LNG Exports Have Yet to Lift Gas Prices

Last month's start-up of LNG Canada, the country's first large-scale liquefied natural gas export facility, has failed to lift Western Canadian natural gas prices as quickly as some market participants and observers expected, due to a persistent supply glut and the gradual pace of the facility's ramp-up.

Shell-led Canada shipped its first cargo of 70,000 metric tons from the country's Pacific coast on June 30, to South Korea.

The export facility, located in northern British Columbia, is anticipated to bring 2.1 billion cubic feet per day (bcfd) of new gas demand to Western Canada, and help gas prices recover from an extended period of weakness from oversupply and warmer winters that have reduced home heating demand.

That boost to prices has yet to materialize. While prices at the Alberta Energy Company (AECO) storage hub have come off last year's lows of 5 cents per million British thermal units, it is still hovering around $1.10 per mmBtu, approximately a third the value of the U.S. Henry Hub benchmark price, according to LSEG data.

"We're probably a dollar off where we thought in January we'd be," said Chris Carlsen, CEO of gas producer Birchcliff Energy.

The recent downward trend in the forward price curve for Western Canadian gas indicates the market believes it may now take longer than previously expected to draw down supply, said Trevor Rix, director of intelligence with Enverus.

IMBALANCE IN THE SYSTEM

Producers have been ramping up output in expectation of LNG Canada coming online, Rix said.

LNG Canada, the first of a handful of Canadian LNG projects, in late June started up Train 1, which has a capacity of 6.5 million tonnes per annum (mtpa), or half of the total output of the facility when the second train comes online.

Canadian gas production hit a record high in 2024, averaging 18.35 bcfd, according to statistics from the Canada Energy Regulator. For the first quarter of 2025, production averaged 19.24 bcfd, which would result in record production this year if the trend continues.

Gas storage capacity in Western Canada is essentially full, at 635 billion cubic feet in inventories.

LNG Canada has been using under 400 million cubic feet per day, well below the first train’s design capacity because of a problem with one of the lines at Train 1, two people familiar with the plant's operation told Reuters.

Repairs are under way and Train 1's production is expected to increase over the next three weeks, putting full output of 1 billion bcfd closer to the end of August, the people said. The second train is not expected to achieve full production until next year.

It is normal for LNG facilities to take months to achieve full production, said Mike Belenkie, CEO of Calgary-based gas producer Advantage Energy.

While he said most Canadian gas drillers have strong enough balance sheets to ride it out until the market improves, the extended downturn has weakened companies' abilities to return capital to shareholders.

"We're instead all in a holding pattern," Belenkie said.

Weather conditions in Western Canada this summer are also contributing to the gas oversupply, as fewer extreme heat days have meant less demand for air conditioning.

There are approximately 200 drilled but uncompleted wells in British Columbia's Montney gas-producing region currently, about double the norm, according to Enverus data.

That is a sign producers have recognized the imbalance in the market and are holding off bringing new wells online until prices improve, Rix said.

(Reuters)