The frenzy surrounding liquefied natural gas has calmed, but considerable investments in export terminal projects are still being considered in Canada. Investors should be wary, according to the organization Investors for Paris Compliance, because global demand forecasts are deflating and Canada is arriving too late in the race.
Published at 8:00 a.m.
The study released Wednesday by the group that tracks companies’ progress toward carbon neutrality is a warning for pension funds and all investors. Considerable risks surround these projects and it is better to stay away from them, maintains its spokesperson, Renaud Gignac.
Demand is deflating
As with oil, experts disagree on the future demand for liquefied natural gas, which allows countries with access to low-cost natural gas, such as Canada, to export it to markets where energy is more expensive, either in Europe and Asia.
In its 2024 forecasts, Shell is banking on an increase of more than 50% in global demand by 2040. For its part, the International Energy Agency, for its part, spoke of a “golden age” for LNG ten years ago, has revised its forecast downwards and now forecasts stable or slightly increasing demand over the coming years.
Based on the sources it considers the most credible, Investors for Paris Compliance notes that global demand has already started to decline. “This should worry LNG project promoters in Canada,” says Renaud Gignac.
The competition is there
Seven LNG export projects are at various stages of advancement in Canada, for total planned investments of more than $100 billion.
Only one of these projects, that of GNL Canada in Kitimat, British Columbia, is nearing completion in Canada, after a proliferation of delays and cost overruns.
Competition has had time to meet needs in Europe and Asia, the study points out, and LNG supply will surpass demand when Canadian projects are completed.
The election of Donald Trump, who vowed to make the United States a global energy power, heralds an increase in LNG supply and is “another thorn in the side for Canadian projects,” says Renaud Gignac.
According to Investors for Paris Compliance, the fact that Canadian banks, led by Royale, finance this type of infrastructure does not mean that the risk associated with these investments is low. “Banks only take a small part of the risk, the majority of which is borne over a period of 20, 30 or 40 years by investors who buy the companies’ shares and bonds,” says Renaud Gignac.
Not dead, Énergie Saguenay?
The only LNG export project in Quebec’s recent history, that of Énergie Saguenay which aimed at the European market, seems well and truly dead. But not buried, according to Renaud Gignac. He notes that Conservative leader Pierre Poilievre, who has every chance of forming the next government in Ottawa, has already said he would put the project back on the agenda.
The American promoters of the project have not given up either. They are demanding 20 billion from the federal government under the provisions of the North American Free Trade Agreement for refusing the project without legal basis.
The Énergie Saguenay project planned the construction of a 780-kilometer gas pipeline from the Ontario border to Saguenay, where a liquefaction plant and an LNG export terminal would have been built. Investments totaling 14 billion were planned.
Climate goals
The environmental objectives of Canada and the provinces are another obstacle that can prevent LNG export projects from happening or becoming profitable. Canadian LNG export projects will have a lifespan that exceeds the 2050 goal set for achieving carbon neutrality.
Liquefied natural gas is considered a lower-emitting energy source that can replace coal, but according to Investors for Paris Compliance, growing research indicates that LNG may burn worse than coal. Many institutional investors, including the Caisse de dépôt, consider natural gas as a transitional energy, while this is not the case, says Renaud Gignac. “It’s worrying to see that investors like the Caisse have adopted this theory, because it’s not at all clear. »
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