Why Liquefied Natural Gas Expansion in Canada Is Not Worth the Risk

Canadian LNG Assets May Become Stranded—With Taxpayers Carrying Much of the Risk 

To navigate this challenging economic landscape for new LNG exports, Canadian LNG projects rely heavily on subsidies and public funding. The LNG Canada project, for example, has already received at least CAD 275 million in direct investments from the federal government, alongside approximately CAD 1 billion in steel tariff exemptions. Provincial data also show that the BC government has provided LNG Canada with at least CAD 5.4 billion in various forms of financial incentives. In addition, provincial and federal governments have funded specialized infrastructure projects such as the CAD 16 billion Site C dam and the Coastal Gaslink pipeline that will be used to transfer feedstock gas to LNG facilities, including LNG Canada (Corkal & Gass, 2019; Simmons, 2022). Similar subsidies—including steel tariff exemptions and reduced rates for electricity consumption—are also expected to apply to Woodfibre LNG. 

The precarious business case for Canadian LNG, in turn, generates economic risk for private investors, public taxpayers (who are contributing through subsidies), participating Indigenous partners, and the local economies in which these projects are being developed. Indeed, the unfavourable market conditions forecast above could result in significant losses for Canadian LNG projects, creating a risk of assets being closed prematurely—thereby becoming stranded. The result would not only be losses for public and private investors but also major economic shocks for the workers and communities that become economically dependent on these projects. In addition, the physical assets themselves would require decommissioning to avoid local environmental damage—the costs of which may ultimately fall on the taxpayer.8 The Canadian economy is already at significant risk of widespread asset stranding in the oil and gas sector (Mercure et al., 2018; Semieniuk et al., 2022); new LNG projects will add further risk to that portfolio, with much of it carried by taxpayers.  

The financial exposure of taxpayers, moreover, may increase over time. If market conditions develop as expected and Canadian LNG projects become at risk of being stranded, then governments may be incentivized to expand subsidies in an attempt to delay the economic and political costs of asset stranding described above. In a competitive international market, LNG producers are likely to rely on substantial government subsidies and public investment to align their production activities with domestic climate targets. The Site C hydroelectric project, for example—electricity from which is essential for decarbonizing LNG Canada—has an estimated project cost of CAD 16 billion that is funded primarily by the Government of British Columbia and increased prices for both residential and industrial BC Hydro consumers (Kurjata & Bains, 2021; Zussman, 2021). Meanwhile, LNG Canada’s proponents have already suggested that even more government support will be required to fully electrify Phase 2 of the project while maintaining its economic viability.  

Implications for Canadian Decision-Makers 

Given market uncertainties and known climate constraints, the risks of LNG expansion far outweigh the suggested benefits. Environmentally, Canadian LNG is at odds with domestic climate obligations. Even in a less ambitious climate scenario, there are significant risks that LNG exports will not drive the net reduction in GHG emissions that its proponents claim. Rather, LNG risks either locking in decades more fossil fuel extraction and consumption (displacing investment from renewables in the process) or leaving multi-billion-dollar assets stranded. Economically, the business case for LNG expansion in Canada is tenuous. Consistent downward revisions of LNG demand forecasts in key Asian and European markets, alongside a supply of cheaper exports from Qatar and the United States, suggest that Canadian LNG may be priced out of the market soon after exports begin. The result would be major economic losses for investors, taxpayers, and local communities alike. Considering these risks, public and private investment should instead be driven toward green industries such as renewable power generation and decarbonized transport systems.  

Importantly, there is still time for Canadian governments to correct course. Large-scale LNG production in Canada has not yet begun, and construction has only advanced significantly for LNG Canada’s Phase 1. The Woodfibre LNG project has begun site preparation activities, but construction is not expected to begin in earnest until later in 2024. All other LNG export facilities are still awaiting various approvals—whether from provincial and…