Canada Looks To Capitalize As U.S. Pauses LNG Export Licenses
- President Biden's LNG export review is aimed at assessing the impact on domestic energy security, consumer costs, and the environment, creating potential for Canada's natural gas sector.
- The pause may shift LNG buyers, particularly in Asia, to consider Canadian alternatives, which boast lower carbon intensity.
- While some view the pause as an economic risk, others see a chance for the U.S. and global markets to pivot towards more sustainable energy practices, with Canada potentially benefiting from its climate-forward approach.
The Biden administration’s decision to pause approvals of new licenses to export liquefied natural gas (LNG) is making major waves both at home and internationally. While there is much hand-wringing about the economic implications of the deal for the United States and its energy trade partners, at least one man, Canadian Energy Minister Jonathan Wilkinson, sees an opportunity for his country’s natural gas sector.
On Friday, President Biden announced that during this pause the U.S. Department of Energy will review and assess whether the nation’s considerable LNG exports are “undermining domestic energy security, raising consumer costs and damaging the environment.”
For Canada, the pause in approvals and what is sure to be an ensuing slowdown in United States natural gas exports offers its own export sector an invaluable window of time to catch up. While the United States has busily built out it’s natural gas industry, and is just slowing down now to pause, reflect, and potentially move toward less emissions-intensive practices, Canada has taken the opposite approach. The growth of the Canadian natural gas sector has been much slower because they approached climate considerations early on thanks to much stricter national policies.
“I think there’s an opportunity,” he said when asked what Biden’s decision means for Canadian gas for an article published by Bloomberg Green on Tuesday. “But it’s on the basis of Canada offering the lowest carbon intensity natural gas in the world, and ensuring we’re linking it to the displacement of heavier hydrocarbons like coal.”
The hope is that some of the Asian nations that rely heavily on United States LNG imports to keep their own economies running may pivot to Canadian imports as they are temporarily frozen out by the Biden administration decision. In the wake of Biden’s announcement, LNG buyers in China and Japan rushed to review alternative options, “including new talks with already-licensed projects in the US or suppliers from other nations,” Bloomberg reports.
Where Wilkinson sees a silver lining, however, others see economic doom and gloom. “I think U.S. allies and trade partners will have some concerns about this, because in the past two years U.S. L.N.G. exports have been a real boon to global energy security,” Ben Cahill, a senior fellow in the energy security and climate change program at the Center for Strategic and International Studies, a Washington-based research institute, told the New York Times this week.
While Wilkinson’s stance suggests that Canada has already done much of the important climate-conscious legwork that the United States is just now addressing, and should now be bullish about taking a slice of exports, industry insiders question how that will be possible without the use of U.S. export terminals. "LNG facilities on the U.S. Gulf Coast are also offering Canadian producers an opportunity to export their natural gas globally," said The Canadian Association of Petroleum Producers president and CEO Lisa Baiton in an emailed statement on Friday. "Given the highly integrated nature of the North American energy market, CAPP is disappointed in the White House decision."
On the other hand, others feel that the U.S. pause places pressure on their neighbors to the north to follow the same tack. Already, a coalition of environmental groups has pressured Canadian leadership to adopt the same pause-and-reflect approach.
The Biden administration’s decision has already caused some anxiety in Europe as well. The European Union is still reeling from its energy sanction war with Russia against the backdrop of the ongoing war in Ukraine. When Moscow illegally invaded Ukraine in February of 2022, the EU was dependent on Russia for 41% of its natural gas. While the bloc has managed to pivot to alternative energies and LNG sources in the past two years, their newfound energy security is still wobbly. As such, any limitation to free-flowing U.S. LNG is viewed as a threat.
However, the United States’ controversial natural gas export pause may yield long-term economic benefits for all. In October, The International Energy Agency’s flagship annual World Energy Outlook report warned that the world is on track to create a global LNG supply glut, with an "unprecedented surge" in LNG projects slated to come online from 2025, adding more than 250 billion cubic meters (bcm) per year of new capacity by 2030. A pause, and perhaps a pivot, from the United States’ own large LNG sector may ease the severity of this outlook.
By Haley Zaremba for Oilprice.com
U.S. Refiners Should Brace for Trans Mountain Pipeline Launch
- Following the news that Trans Mountain Corporation will start filling the expanded pipeline in February, with first crude to be loaded from Vancouver in April, Canadian crude prices jumped to the narrowest discount to WTI since August 2023.
- U.S. refiners used to cheap Canadian crude will need to start budgeting more for the commodity from this spring.
- Canadian oil producers are preparing for the 890,000 bpd in takeaway capacity growth.
When Kinder Morgan first announced its plans to expand the capacity of the Trans Mountain oil pipeline from 300,000 bpd to 890,000 bpd, it probably thought it was another major project.
Several years later, the company had given up on the project and sold it to the Canadian federal government for less than $4 billion. For a long time, it seemed like Trans Mountain would never be completed, plagued by opposition and regulatory snags.
Despite all this, it seems the pipeline is about to go into operation this year. And U.S. refiners used to cheap Canadian oil might need to reach deeper into their pockets to keep buying it.
The idea behind the Trans Mountain expansion was to turn Canada into a true oil exporter, reaching international markets rather than just the U.S. market, massive as it is. One reason this took so long was that the government of the province that was to host most of the pipeline was dead against it.
The John Horgan government was very environmentally minded. It would rather have Alberta stop all oil flows to British Columbia than endure the construction of the expanded Trans Mountain pipeline. That set back the project by months, and so did environmental protests against the pipeline.
Amid all this, the discount at which Canadian crude normally trades to WTI deepened and hardened. Canadian oil was going to the United States—all the way to the Gulf Coast—and only from there could it reach international markets. It was a complicated situation.
Then, when Kinder Morgan had enough and sold the project, the Trans Mountain expansion got a new lease of life—ironically, from a federal government that has made no secret of its distaste towards the oil industry. And it paid for that distaste. From an original $3.4-billion price tag, the Trans Mountain expansion bill swelled to over $23 billion.
Inflation and supply chain problems were among the reasons for the sixfold increase in the cost of the project, as were construction challenges due to the geology along the route of the pipe. Oil producers have not exactly welcomed the cost overruns—there were suspicions that to make up for these, Trans Mountain Corporation would charge them higher fees for carrying their crude.
Even so, producers began ramping up production in anticipation of the launch. Canadian Natural Resources said earlier this year that it would boost output in 2024 by 40,000 barrels of oil equivalent daily. Cenovus Energy announced plans to spend more on production growth as well. Oil producers are preparing for that 890,000 bpd in capacity.
Prices have responded, too. Following the news that Trans Mountain Corporation will start filling the expanded pipeline in February, with first crude to be loaded from Vancouver in April, Canadian crude prices jumped to the narrowest discount to WTI since August 2023. The current discount is about $16 per barrel.
This means that U.S. refiners used to cheap Canadian crude will need to start budgeting more for the commodity from this spring—assuming the project does not hit yet another snag. You never know, after in September the Canadian Energy Regulator gave TMC the go-ahead to change the route of the expanded pipe due to challenging terrain.
Just a month later, the same CER ordered TMC to stop work on the pipeline on the grounds of non-compliance with environmental and safety regulations. A month later, the regulator decided it could not allow TMC to go ahead with the route alternation after all because of opposition from the Indigenous community through whose land that section would pass. By December, however, the CER had changed its mind and granted TMC the permit it needed to continue work on the pipeline.
These sorts of setbacks made it really hard to believe the Trans Mountain pipeline will indeed see the light of day as an operating pipeline, but it seems it might happen after all. And that means more expensive oil for U.S. refiners. They’re about to encounter some international competition for Canadian crude.
By Irina Slav for Oilprice.com
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