A major shift is coming to North American natural gas markets as LNG Canada prepares to begin exporting natural gas overseas. While the project is located in British Columbia, its implications will be felt well beyond Canada’s borders. For U.S. energy users, LNG Canada introduces a new layer of demand that could influence natural gas pricing, basis spreads, and power costs over the back half of this decade.
What Is LNG Canada?
LNG Canada is a liquefied natural gas export facility under construction in Kitimat, BC, set to begin operations in 2025. Phase 1 will export roughly 1.8 BCF/day of Western Canadian natural gas, primarily to Asia. Backed by a consortium of global energy firms, the project is Canada’s first large-scale LNG export terminal.
A potential Phase 2 would increase exports to 3.6 BCF/day, but that expansion is not yet approved.
Source: LNG Canada
Why It Matters for U.S. Gas Markets
Although located in Canada, LNG Canada will affect North American natural gas balances in several ways:
- Diversion of Canadian Gas: Today, a significant portion of Canadian production flows south into U.S. markets, particularly the Pacific Northwest and Midwest. Once LNG Canada goes live, much of that gas will be redirected west to the Kitimat terminal instead of crossing the U.S. border.
- Tighter Supply Availability: LNG Canada adds new demand on the same continental supply pool the U.S. relies on. This will reduce slack in the system and tighten balances, especially in winter when heating and power generation demand already strain the grid.
- Support for Higher Forward Prices: As both U.S. and Canadian LNG export capacity grow, projected to increase by 10+ BCF/day in the U.S. and another 1.8 to 3.6 BCF/day in Canada, the North American market could shift from structurally oversupplied to balanced or tight. This supports a higher floor for natural gas forward prices, particularly beyond 2026.
Impact on U.S. Electricity Costs
In many regions of the U.S., natural gas remains the marginal fuel for electricity generation. As gas prices rise, especially on forward contracts, wholesale electricity prices are likely to follow, especially in in PJM, ISO-NE, ERCOT, and MISO.
Key implications include:
- Higher renewal costs for customers on fixed-price electricity contracts that expire in 2026 or later
- Increased volatility for customers with index-based electricity pricing, as global LNG dynamics drive more price movement in the gas markets that underpin wholesale power
- Regional price separation depending on pipeline constraints, storage availability, and exposure to export-driven basis shifts
While LNG Canada is just one piece of a larger picture, it contributes to a structural trend that links U.S. power and gas costs more tightly to global markets.
More Canadian LNG Is Likely Coming
LNG Canada is just the beginning. Additional projects are in development:
- Cedar LNG, a smaller 0.4 BCF/day project also near Kitimat, could come online by 2028
- Ksi Lisims LNG, a proposed 1.6 BCF/day facility, is still seeking approval but is targeting the end of the decade
If both are built, total Canadian LNG export capacity could exceed 5 BCF/day—equivalent to roughly one-third of current U.S. LNG exports. While that won’t fundamentally alter global LNG leadership, it will further tighten the North American gas market.
Worldwide demand for LNG is projected to climb from around 52 BCF/day in 2023 to over 80 BCF/day by 2040, with Asia driving the majority of growth. That demand trajectory means LNG Canada and similar projects are unlikely to cannibalize existing U.S. export volumes. Instead, they are more likely to compete for future market share while pulling more gas out of the same continental pool.
LNG Canada will not disrupt the U.S. energy market overnight, but it is part of a longer-term structural shift. As more North American gas is routed to overseas buyers, end users in the U.S. should prepare for tighter domestic supply, increased competition for molecules, and higher long-term price risk in both natural gas and electricity markets.
Procurement strategies that worked in the oversupplied market of the last decade may not hold up under these new conditions. Buyers should consider reviewing hedge timing, contract length, and market exposure well ahead of 2026 when many of these supply changes take hold.
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