LNG Canada Plant Faces Early Operational Challenges, Delays Exports & Affects Gas Prices

Canada’s significant stride into the global liquefied natural gas (LNG) market is encountering early operational challenges. The Shell-led LNG Canada facility in Kitimat, British Columbia, the nation’s inaugural major LNG export plant and the first on North America’s west coast, is reportedly experiencing technical issues during its commissioning and ramp-up phase. This situation is impacting initial production volumes and export schedules, thereby delaying the anticipated boost to persistently low Canadian natural gas prices.

• LNG Canada, North America’s first major West Coast LNG export plant, is facing technical challenges during commissioning.
• The facility’s first processing unit (Train 1) is operating at less than 50% of designed capacity due to issues with a gas turbine and Refrigerant Production Unit.
• These setbacks are delaying the planned increase in demand for Canadian natural gas, contributing to continued price depression.
• Initial exports have commenced, with four cargoes shipped to date, but the ramp-up and export cadence are slower than anticipated.
• The project is a substantial joint venture involving Shell, Petronas, PetroChina, Mitsubishi Corp, and KOGAS, targeting 14 million metric tonnes per annum (mtpa) for Asian markets.

Operational Challenges and Market Implications

Sources familiar with the plant’s operations indicate that the facility’s first processing unit, known as Train 1, has been operating at less than half its designed capacity. The reported technical problems include issues with a gas turbine and a Refrigerant Production Unit (RPU), both critical components for LNG liquefaction. A spokesperson for LNG Canada acknowledged that new-build facilities of this scale and complexity may encounter operational setbacks during their stabilization and ramp-up phases, a common occurrence in large-scale energy infrastructure projects.

The slower-than-anticipated ramp-up has direct implications for the Canadian natural gas market. Despite the plant’s expected demand uplift, Western Canadian natural gas prices remain depressed due to an ongoing supply glut. For example, the daily spot price at the Alberta Energy Company (AECO) storage hub was recorded at $0.22 per mmBtu on Tuesday, a significant disparity when compared to the U.S. Henry Hub benchmark price of $3.12, according to LSEG data. This highlights the market’s reliance on new demand outlets to absorb excess supply.

On the export front, LSEG ship tracking data showed at least one LNG tanker, initially signaling its route to Kitimat, was subsequently diverted to Peru. Other tankers, however, remain in proximity to the facility. The plant, which commenced its first shipment on July 1, has reportedly exported four cargoes to date, with another shipment anticipated in the coming days. The pace of exports is expected to increase as the facility transitions from its early operational phase into a steady shipping cadence.

Strategic Vision and Market Access

LNG Canada is a substantial joint venture representing a key strategic investment for its global partners. The consortium includes Shell, Malaysia’s Petronas, PetroChina, Japan’s Mitsubishi Corp, and South Korea’s KOGAS. Positioned to provide direct access to Asia, the world’s largest LNG market, the facility is designed to convert approximately 2 billion cubic feet of natural gas per day (bcfd) into LNG when fully operational, targeting an export capacity of 14 million metric tonnes per annum (mtpa). This project is critical for Canada’s long-term energy export strategy, aiming to diversify its energy markets and provide a stable outlet for its vast natural gas reserves. Despite current commissioning hurdles, the project’s strategic importance for global energy supply diversification and Canada’s role in the international LNG trade remains undiminished.