July 7, 2025

In The Business Case for Canadian LNG – Part 1, we examined the Global carbon emissions treaty frameworks, Canadian legislated emissions targets, and the huge downward impact on global CO₂ emissions from Canadian LNG projects.

The Business Case for Canadian LNG – Part 2 quantified the cost advantage for Canadian west coast LNG landed into Asia, versus US Gulf Coast (USGC) Projects. We then calculated the impact of current BC and federal net-zero power requirements on new projects. These policies eliminate the Canadian LNG cost advantage and bring untenable power cost risk to BC projects that US projects do not have.

Our conclusion is that Canadian LNG projects have a cost advantage over USGC projects, but current BC and federal net-zero policies preventing the use of gas-fired power on-site adds costs and price risk and therefore must be reversed for new large-scale projects to proceed.

In this last Part 3, we look back at the history of LNG liquefaction projects in Canada, and the progression of federal and provincial policies that are the primary impediment to new large-scale development: Killing the Golden Goose.

 

How does Canada LNG development stack up so far?

As a trading nation, Canada competes against other countries, including the US for markets and capital investment. And on an LNG investment basis, Canada lags far behind Australia, Qatar, and the U.S.  Especially the U.S.

In the US there are 8 operating LNG Projects, and another 20 are permitted, comprising over 49 Bcf/d in total authorized LNG exports. Of this authorized amount, approximately 15 Bcf/d of export capacity is currently operating, and Incorrys projects US LNG exports to grow to 26 Bcf/d by 2030.

Meanwhile, in Canada, the first phase of LNG Canada is under construction and the first cargo has loaded in June 2025. First phase exports are authorized at 1.84 Bcf/d. LNG Canada Phase 2 has not yet taken a Final Investment Decision (FID).

Current Canadian LNG export licences total 6.62 Bcf/d, but FIDs for several projects have not been taken. Incorrys expects Canadian exports to approximate 4 Bcf/d by 2030, primarily dependent on timing of LNG Canada Phase 2 and Cedar LNG.

By any measure, Canada lags far behind the US in LNG export capacity and exports.

 

How did we get here?

Incorrys staff conducted the first Canadian LNG feasibility study in 2008 for an Asian client and potential investor, examining the viability of natural gas liquefaction and export from Kitimat BC. The following year we conducted a similar feasibility study for a European super major.

Kitimat LNG was originally envisioned as an LNG regasification facility, to bring offshore gas to Canadian and North American markets in the face of declining productivity from conventional basins. The cost of North American natural gas was steadily increasing to the point where LNG imports were competitive with conventional North American gas. Indeed, imported LNG was the marginal source of supply and was setting the price for all North American natural gas. This is how a functioning market works.

North American LNG imports at this time were in the order of 3 Bcf/d, US lower 48 supply was ~50 Bcf/d and Canadian production was hovering around ~16 Bcf/d. US regasification terminals were springing up, primarily in the US Gulf Coast region, to bring in much needed gas supply.  In Canada, the Kitimat regasification facility in British Columbia was in the conceptual stages.

But all of this changed seemingly overnight. The same price signal that led to LNG imports, also resulted in development of hydraulic fracturing and horizontal drilling in the US Barnett and Haynesville shale plays, and in the Canadian Horn River, Liard and Montney shale and tight gas plays.

North American unconventional gas was unlocked at grand scale. This plentiful low-cost natural gas could now supply all domestic demand. There was ample low-cost resource for North American power generation, residential and industrial use, and an attractive arbitrage from North America to offshore markets; North America quickly pivoted from an importer to a potential LNG exporter.

Our initial feasibility analysis showed that LNG from the west coast of Canada had all the ingredients for success: – ample and low-cost gas supply, a mature upstream industry to bring the gas onstream, a mature and capable pipeline industry with multiple players capable of building and operating long-haul projects, access to manpower and expertise in delivering large scale energy projects – look no further than the Canadian oil sands, lower ambient temperatures than other LNG producing areas (including the shipping distances to Asian LNG markets. There was a significant locational advantage for west coast Canada LNG versus the US Gulf Coast. And this showed up in our analysis of landed costs.

We cautioned our client that although the supply, demand and market fundamentals supported Canadian LNG exports, that government policy could change in future, and could be an obstacle to development.

Based on our analysis, the Kitimat LNG Liquefaction Project (KM LNG) was born, moving through the regulatory process, and attaining a NEB long term export licence. Other large-scale LNG export projects sprang up, including LNG Canada, and Petronas’ Pacific Northwest LNG in Prince Rupert, Nexen’s Aurora LNG, WCC LNG – Exxon and others.

Calgary’s downtown core was alive with LNG buyers from Japan, Korea, China, and other Asian jurisdictions. Deepwater sites on BC’s west coast were identified, and east coast Canada projects also materialized for delivery to European markets.

Prospective LNG buyers invested $Billions buying up natural gas acreage in western Canadian tight gas and shale basins, including the Horn River, Liard, and the Montney. Projects took shape and regulatory filings were submitted. Incorrys staff completed evidence for 18 successful LNG export licence applications.

In 2013, Christy Clark’s BC Liberals swept back into office promising that the provincial windfall from the LNG industry could eliminate B.C.’s $60B debt, generate up to $1 trillion in economic activity, fill a $100B prosperity fund, and create up to 100,000 jobs.

This was a promise that got voters’ attention: The Golden Goose.

 

Killing the Golden Goose

As part of her platform, she announced that B.C. would introduce an LNG export tax, ranging up to 7%. Months of delays ensued as the tax design was studied, and LNG Projects were forced to wait for the final tax rate and details, to determine Project implications, and costs.

These delays led to a loss of momentum. BC Projects were off the table for buyers needing gas molecules. And LNG buyers, desperate for natural gas supply, looked south, signing deals with US Gulf Coast (USGC) Projects, taking the lion’s share of the supply gap in the 2018-2025 demand window, approximating 10 Bcf/d.

The US began to build. And Canada stalled.

 

 When you mix energy fundamentals and politics, you get politics.

After the 2017 BC election, the NDP under John Horgan formed Government under a confidence-and-supply deal with the Green Party. Several major projects folded very soon afterward, including Nexen’s Aurora LNG and the $36B Pacific Northwest LNG project led by Malaysia’s state-owned Petronas.

And in 2018, the BC government announced their CleanBC roadmap, “introducing new measures so that we can meet our Paris emissions reduction targets for 2030 and reach net zero by 2050.”

CleanBC effectively pushed LNG Projects to electric drive for their liquefaction process(es), except for LNG Canada, which was already permitted and grandfathered to use proprietary natural gas to produce power on site.

There is a huge amount of electricity required to power LNG liquefaction processes, which amount to huge refrigerators, cooling natural gas to negative 162C, thereby converting the gas to a liquid. CleanBC added power cost risk to new projects.

Projects were now effectively at the mercy of BC Hydro for their electrons and would pay the going electricity rate. Unlike power generation from proprietary upstream natural gas, where costs can be managed over the next 40 years, CleanBC resulted in a black box of risk and costs that was, and is, untenable for new large-scale LNG.

In December 2018, the WCC LNG Project owned by ExxonMobil also withdrew its application from the BC environmental assessment process.

 

BC Doubles-Down

On March 14, 2023, the BC Government doubled down on their CleanBC legislation, announcing a “New energy action framework’ intended to “ensure oil and gas sector projects fit within B.C.’s climate commitments….”

With respect to LNG development, the Province of B.C. will:

• Require all proposed LNG facilities in or entering the environmental (EA) process to pass an emissions test with a credible plan to be net-zero by 2030.

“This may involve adopting best-in-class technology to reduce emissions as much as possible and offsetting their remaining emissions through high-quality, verified carbon offset projects. This new requirement will help ensure that proposed LNG facilities meet the province’s condition that LNG development fits within B.C.’s legislated climate targets.”

 

The Feds Pile On

On August 10, 2023, then Canadian Environment Minister Steven Guilbeault announced draft regulations to move Canadian electricity to net-zero carbon by 2035. Subsequently, on December 17, 2024, the Government of Canada released the finalized Clean Electricity Regulations (CER or Regulations). The Regulations are touted as a key component of Canada’s climate strategy, designed to achieve a net-zero electricity grid by 2035 and contribute to economy-wide net-zero emissions by 2050.

 

The Current State of Canadian LNG Policy and Investment 

As we pointed out in Part 1, Canada’s climate strategy and enacting legislation is driving LNG policy.

Federal and provincial requirements and legislation mandate that LNG must be net-zero, forcing new Projects to purchase power from BC Hydro, which is currently more expensive than proprietary gas-fired power, eliminating the (BC LNG) landed cost advantage over USGC projects.

BC policy has seeming been softened for new projects, ostensibly meaning they can begin with gas-fired power, if BC Hydro supply is unavailable.

But, and it’s a big ‘but’ – new LNG projects must show a credible path to net-zero by 2030 as an approval requirement.

Even if a new Project could begin operations driving their processes with gas-fired power, how else would they be able to show a credible path to net-zero other than by committing to purchase power from BC Hydro at some point in the future? For the grandfathered LNG Canada project, the future cost for natural gas-fired power can be easily managed from proprietary upstream gas molecules. But what will be the future cost of BC Hydro electrons in 2035 or 2045?

Moreover, with current federal CER policy in place, BC Hydro will be required to add costly renewable (intermittent) power, firm backup power and new transmission lines to connect renewables to west coast BC LNG sites. This takes time and money. Who will bear the cost?

And the irony is that even the electrified projects must also have on-site gas-fired power generation in case the BC Hydro grid goes down, adding to capital costs.

The result of these federal and provincial policies is that most large-scale LNG Projects have folded, except for LNG Canada, which is already permitted and grandfathered to produce gas-fired power on site. Clearly, there was a business case for LNG Canada.

There are a couple of small electric drive projects that are likely to proceed, and the Ksi Lisims project will be a litmus test for net-zero LNG. Incorrys does not expect this project to proceed based on electric drive.

In our view, there is too much power price risk from current federal and BC net-zero legislation over the 25–40-year economic life of new large-scale LNG projects for them to gain board approval(s).

 

Energy Superpower? Whither Canada.

If Canada were run classically, there would be minimal government intervention in the economy, markets would self-regulate, and capital would be allocated to the most competitive sectors. The exact opposite has transpired with respect to LNG investment.

Beginning with the BC LNG Export Tax and continuing with the CleanBC legislation and subsequent ‘new energy action framework’ net-zero requirements for new LNG Projects, and the Federal net-zero (CER) electricity regulations, policy roadblocks and risks have been placed in front of these large-scale projects, which would otherwise proceed.

It’s almost as if federal and BC provincial politicians don’t want any new large-scale LNG projects to proceed….

Meanwhile, in the good ol’ USA. There is no state or federal LNG income tax, or chatter about it. There is no net-zero power regulation – the projects are free to produce power behind the plant gate to run their processes. And there is no industrial carbon tax.

Many more US projects are permitted and authorized than are likely to proceed to FID, shareholders and markets will determine which ones will be successful.

 

The Solution?

Canadian LNG landed in Asian markets results in a huge reduction in global CO₂ emissions, LNG Canada alone reduces global emissions by a minimum of 75 mtpa, effectively offsetting all of BC’s emissions every year (see The Business Case for Canadian LNG – Part 1).

To reduce power cost escalation risk, gas-fired power is required for future large-scale LNG projects. We recommend the following actions:

• The Paris Agreement – Article 6 framework must be strengthened to ensure that emissions reduction credits are transferred automatically from nations utilizing lower CO₂ intensive forms of energy produced elsewhere to replace more CO₂ intensive energy sources at the burner tip – essentially by replacing coal with natural gas in the production of electricity.
• The federal government should allow firms that can show verified emission offsets via trade to claim those offsets, including against the proposed CO₂ emissions cap for the oil and gas industry, or a percentage of the offsets, within Canada and trade them on carbon credit markets.
• The BC government should allow downstream emissions reductions resulting from the replacement of higher carbon intensive coal-fired power with BC LNG, as quality, verified projects for the purposes of complying with BC’s net-zero LNG standards.

 

Although these policy enhancements would not result in credits counting directly to Canadian Paris Agreement targets due to the clearly flawed Article 6 framework – they would contribute to the goal of global emissions reduction and allow (carbon) markets to drive the switch from high emitting coal to lower emitting natural gas.

These solutions would give political cover to BC and the federal government to reverse net-zero policies on LNG and eliminate the power price risk for major west coast LNG projects.

Political will is required at the federal and provincial level(s) to enact these policy changes.

Global LNG capital investment is mobile.

And it’s not coming to Canada.

 

For more information, please contact:

Edward Kalio Executive Advisor ekallio@incorrys.com 403-978-1555

Cameron Gingrich Managing Director cgingrich@incorrys.com