The North American supply advantage has been enabled largely by advancing technologies for shale gas recovery creating surplus supply relative to domestic demand. This supply advantage, coupled with an ever increasing demand for cleaner fuels in Asian countries, has created a substantial opportunity. Canada, with massive resources relative to domestic demand, an export oriented industry mindset, and significant Asian sector investment, can present as a natural market for investors and Asian buyers.
Competitive landscape: However the supply opportunity is intensely competitive with upwards of seven times demand from several regions competing to supply Asian and other demand centres with LNG. Competitors vying to supply LNG include the US, East Africa, Australia and Russia (both LNG and piped gas) as well as some niche players, new aspirants, and most recently, Iran.
The future market opportunity is dynamic and will be limited to those who, as “table stakes”, can demonstrate cost effectiveness and meet delivery timing windows to secure offtake agreements. In Canada’s case, the opportunity is to help successfully position the merits of supply diversification in geopolitics, geography and long term investment in and access to significant resources given price competition.
Recent activities in all supply markets have been focused on chasing the Asian LNG supply gap prior to the 2020’s with the US following Australia’s lead. The drop in oil prices has since impacted the affordability and economics of projects, resulting in deferrals and likely abandonments as companies grapple with reduced CAPEX budgets. Adding to the challenge of economics, investors and Asian LNG buyers have become more cautious, price-sensitive and opportunistic buyers who are starting to assert their power in buyer consortiums. These changes create a more challenging supply environment with more discerning buyers and increased uncertainty around which projects will proceed.
In summary, Canada has an opportunity to be a world leader in global LNG supply owing to its proximity to Asia, its stable and supportive political environment, its vast reserves relative to domestic demand and its pre-existing Asian upstream investments. However, the opportunity is not without challenge. Western Canada projects that will appeal to shifting investor and Asian buyer priorities and interests will have to be cognizant of three imperatives:
To meet all key stakeholders in Canada's LNG value chain, discuss critical issues and do business in the heartland of Canadian LNG project development, attend Canada LNG Export Conference & Exhibition this May in Vancouver.
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Image provided by KPMG.
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