LNG Canada, a massive liquefied natural gas export terminal led by Shell, is set to begin operations next year, but analysts are skeptical it will significantly boost Canadian natural gas prices. The facility, expected to bring a surge of new demand, might face an uphill battle to lift prices because of a large backlog of untapped supply waiting to enter the market.
Gas prices at Alberta’s AECO hub plummeted to a two-year low of just 5 Canadian cents per million British thermal units (mmBtu) in late September, driven by storage facilities reaching capacity. The slump has hit producers hard, especially those who increased drilling activity this year in anticipation of LNG Canada coming online. The low prices have led some companies to scale back production to balance supply and demand.
Industry executives estimate that between 800 million and 1 billion cubic feet per day (bcf/d) of gas production has been temporarily shut in, accounting for about 5% of Canada’s total production. Canadian Natural Resources Ltd., for example, has postponed completion of new wells until prices recover. Similarly, Advantage Energy recently announced curtailments, with up to 130 million cubic feet per day of dry gas being shut in.
Advantage CEO Michael Belenkie expressed frustration with some producers who continued to sell gas at a loss rather than waiting for prices to rebound. “Producers basically started to front-run the growth in demand,” Belenkie said. “In three, six, nine months we will see substantial off-take from the system, but people have delivered early.”
The 14 million ton per annum (mtpa) LNG Canada terminal, a joint venture involving partners like Japan’s Mitsubishi Corp and Malaysia’s Petronas, will require around 2.1 bcf/d of gas. Despite this substantial demand, AECO futures indicate that prices will only reach C$2.46 per gigajoule (C$2.33/mmBtu) by September 2025—a drop from earlier forecasts.
“Right now, prices are not signaling there’s going to be a big windfall in 2025,” said Jean-Paul Lachance, CEO of Peyto Exploration, Canada’s fifth-largest gas company. Lachance noted a growing consensus that LNG Canada will likely not be fully ramped up until the latter half of 2025. He also raised concerns about producers potentially restarting curtailed volumes too quickly once prices improve, which could put renewed pressure on the market.
“If everybody brings it all back on at once, that will probably stress the market again,” Lachance warned. Many Canadian producers have diversified their sales into other North American markets to mitigate exposure to the highly volatile AECO prices.
LNG Canada recently reported that the terminal is 95% complete and remains on track to deliver its first cargos by mid-2025. Jeremy McCrea, an analyst at BMO Capital Markets, believes that LNG Canada should help reduce AECO market volatility, which has been subject to dramatic price swings due to limited storage capacity. “It’s hard to see gas going to C$5, but it should provide stability so we don’t get down to the 50 cents level,” McCrea said.
AECO prices have rebounded in recent days, climbing above C$1.50 per gigajoule, buoyed by production curtailments and increased demand from Alberta’s oil sands. A colder-than-normal winter could also help draw down storage levels and lift prices. Martin King, an analyst at RBN Energy, suggested that curtailed volumes could return to the market before the year’s end if prices rise further.
“If it’s November 20 and prices are back up around C$2.25, all that gas that has been temporarily shut in comes roaring back to the market,” King said. “But the question is, could this end up being too much of a good thing and cause the market to short-circuit itself?”
While LNG Canada promises to bring new demand and some stability to Canadian natural gas, the delicate balance between production and price remains a concern for industry insiders. As the first major LNG export terminal in Canada, its success will be closely watched by both producers and analysts, who hope it can bring much-needed relief to a volatile market.
