Will Canada's LNG Production Support New EU Demand?
With an array of European officials (most recently a German contingent) looking to Canada for some potential energy solutions, we focus on Canada's LNG potential from a selection of existing projects along with some stock market exposure – primarily via US-related assets for several large energy infrastructure companies.
With current energy (im)balances, natural gas prices remain robust in overseas markets, and Canada's AECO benchmark indicates a shift in demand that requires a considerable amount of capital and time to capture. In this context, we focus on AECO and an Asian and European natural gas pricing benchmark to provide a broader perspective.
With the current focus on Europe's energy market dynamics, we start with an overview of global natural gas production and consumption on a historical and projected basis.
Canada long served as an export-oriented natural gas producer – almost exclusively to the US. However, that relationship has become less relevant with the growth in American production. Canadian natural gas production did not diminish owing to a lack of resources but for various other reasons. As a result of the rise in US production and exports, Canadian exports shrank, and imports increased (some imports into Eastern Canada and volumes that also transit from Canada into the US and back into Canada).
Naturally, the US benefited from a meaningful increase in LNG capacity that helped facilitate a large part of the export growth. Without large-scale LNG, Canada has yet to capture any significant benefit from exports, other than those to the US. Yet the current situation in Europe raises several questions, and Canada benefits from a well-developed energy ecosystem with a series of favourable ESG and rule of law metrics.
