European buyers discuss shipping Canadian LNG through the Panama Canal as a diversification of supply

Two sources said that European buyers, such as Germany's Uniper are exploring the possibility of buying liquefied gas from Canada on the Pacific coast, and shipping it via the Panama Canal, as part of a strategy to diversify the supply. This effort is made even more urgent by the Iran War.

Three sources have confirmed that European buyers have held commercial discussions with Canada's Ksi Lisims LNG. The project is a proposed terminal for the export of liquefied gas. Its backers are working to finalize agreements with potential purchasers in order to make a final investment decision expected this year. Two sources say that state-owned German energy company Uniper is among the potential European clients who are interested in Ksi Lisims. This is because Canada's growing LNG export industry is better suited for supplying Asia, and the tolls and time required to ship through Panama Canal will raise costs. The majority of Canada's LNG export capacity is on its west coast. This allows for quick shipping to Asian buyers. However, the east coast lacks infrastructure, with only Repsol's Saint John Terminal.

The lack of infrastructure has long been viewed as a barrier for Canada to supply any significant amounts of LNG to Europe. A source familiar with the Ksi Lisims LNG Project said that the Middle East conflict has caused European buyers to consider accepting the higher costs and longer transit times of shipping through Panama Canal to diversify their sources to a stable democratic jurisdiction such as Canada.

The source stated that "since the start of the war in Iran, LNG buyers from all over the world have shown a strong interest in the (Ksi Lisims') offtake, including those from Europe." Uniper declined comment. In March, it was reported that the German firm was in discussions with Canada on a corporate and politic level to increase its purchases of liquefied gas. Two sources claim that 96% of Germany’s LNG imports came from the United States last year. Ksi Lisims has potential to diversify this supply.

The Ksi Lisims Project is not an immediate solution for Europe's energy problems. Even if the proponents, Houston-based Western LNG, a consortium consisting of Canadian natural gas producers named Rockies LNG, and the Nisga'a First Nation who owns the land for the Ksi Lisims project, decide to proceed, the construction will take several years. The Canadian government has referred the project to the major projects office of Canada for fast-tracking. Mark Carney, the Prime Minister of Canada, has sought to accelerate natural resource project permits to boost an economic that is threatened by U.S. Trade Policy.

Shell and TotalEnergies already have 20-year LNG Purchase Agreements with Ksi Lisims.

Canada's Energy and Natural Resources Minister stated in August that German companies were interested in buying and trading Canadian LNG cargoes. Sources said that they are now interested in receiving shipments of Canadian LNG.

Jamie Heard is vice president of capital markets for Tourmaline Oil, one of Rockies LNG's partners in the project. He noted that Western Canadian natural-gas prices are still below the U.S. benchmark. This makes a compelling business case for Canadian LNG.

Heard stated in an interview that "the economic rationale exists, and these projects can be paid off very quickly with spreads of this level." (Reporting from Amanda Stephenson, Calgary; Additional reporting by Christoph Steitz, Marwa Rashad and Nick Zieminski; Editing by Caroline Stauffer & Nick Zieminski).

(source: Reuters)