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Gas prices will not rise due to LNG Canada's launch despite glut of supply

The start-up last month of LNG Canada, Canada's first large-scale facility for liquefied gas exports, failed to raise Western Canadian natural-gas prices as fast as some observers and market participants expected. This is due to the persistent glut of supply and the slow pace of the facility ramp-up. Shell-led LNG Canada delivered its first cargo, 70,000 metric tonnes of natural gas to South Korea on June 30. The new export facility in northern British Columbia is expected to add 2.1 billion cubic foot per day of gas to Western Canada. It will also help to recover gas prices from a prolonged period of weakness due to oversupply, warmer winters, and reduced home heating demands. This boost in prices is yet to be realized. Although prices at the Alberta Energy Company's (AECO) storage center have decreased from last year's 5 cents for every million British thermal unit, they are still hovering around 1.00 per mmBtu. This is about a third of the price of the U.S. Henry Hub reference price.

Chris Carlsen is the CEO of Birchcliff Energy, a gas producer.

Trevor Rix (Director of Intelligence at Enverus) said that the recent downward trend in forward prices for Western Canadian Gas indicates the market believes that it will take longer to reduce supply than originally expected.

A SYSTEM IN IMBALANCE

Rix stated that producers have increased production in anticipation of LNG Canada's coming on line.

In late June, LNG Canada, one of only a few Canadian LNG projects, started Train 1. This train has a production capacity of 6.5 mtpa, or about half the total output when the second trains comes online.

Statistics from the Canada Energy Regulator show that Canadian gas production reached a record in 2024. It averaged 18.35 bcfd. The first quarter of 2025 saw a production average of 19.24 bcfd. If this trend continues, it would mean a record-breaking year for Canadian gas production.

Gas storage capacity is almost full in Western Canada, with 635 billion cubic foot in inventories.

Due to a problem on one of the train 1 lines, LNG Canada is using less than 400 million cubic feet of gas per day. This is well below the design capacity of the first train.

The people reported that repairs are underway and Train 1 is expected to produce more in the next three to four weeks. This will bring the full production of 1 billion Bcfd nearer the end of August. The second train will not be able to reach full production until the next year.

Mike Belenkie is the CEO of Calgary's gas producer Advantage Energy. He said that it is normal for LNG plants to take several months to reach full production.

The extended downturn, he said, has made it harder for companies to return capital to their shareholders.

Belenkie stated, "We are instead in a holding pattern."

The weather conditions in Western Canada have also contributed to the oversupply of gas, since fewer days with extreme heat has meant less demand for air conditioners.

Enverus data shows that there are currently about 200 unfinished wells in British Columbia’s Montney region, which produces gas. This is almost double the normal number.

Rix explained that this is an indication producers are aware of the imbalance on the market and have delayed bringing in new wells until prices improve. (Reporting from Amanda Stephenson, Calgary; Curtis Williams, Houston; Editing and Margueritachoy by Liz Hampton)

(source: Reuters)