Canada's gas market 'about to turn the corner,' say analysts eyeing up to 7 years of excess demand
He and his peers see new LNG export projects spurring higher prices for Canadian producers for years to come as demand outstrips supply.
The first delivery of liquefied natural gas (LNG) produced at the LNG Canada terminal near Kitimat, B.C. left port for a storage and regasification terminal in Incheon, South Korea last week. Prior to this, Canada's only export market has been the United States via pipeline.
The Shell PLC-led (SHEL) joint venture provides long-awaited access to higher prices for Canadian gas in Asia.
'Long-suffering Canadian gas companies (and investors) are poised to benefit from several structural changes, including: the start-up of LNG Canada, declining production in several major U.S. basins, and growing demand from AI and data centres,' Ollenberger wrote in a recent note to clients.
'[The] Canadian gas market [is] about to turn the corner.'
The first phase of LNG Canada will export from two processing units with a total capacity of 14 million tonnes per annum (mtpa). A second phase under consideration would double that. Meanwhile, two additional projects in Canada have reached their final investment decision: Cedar LNG and Woodfibre LNG.
A new analysis by Deloitte Canada published on Monday estimates Canada will not fill the demand created by current LNG export projects for four to seven years.
'This likely will mean the strengthening of the AECO benchmark, enabling Canadian producers to achieve more favourable value for their gas,' Deloitte Canada researchers led by energy, resources and industrials partner Andrew Botterill wrote in the report.
'In this period where production is growing to meet demand, natural gas prices should see a narrowing of the differential relative to Henry Hub that lasts for multiple years once exports ramp up from LNG Canada.'
Canada is the world's fifth-largest producer of natural gas, and the fourth-largest global exporter.
Producers faced tough times in 2024 as prices fell to their lowest levels in more than 40 years. According to Statistics Canada, higher production and storage, coupled with weaker-than-expected winter demand, caused prices to plummet in the second half of the year.
Deloitte Canada sees AECO prices averaging $2.20 per million BTUs in 2025, up from $1.39 in 2024. In 2026, the firm says AECO prices are expected to average $3.45, before plateauing at $3.50 until 2032.
'We're bullish on natural gas,' Bay Street fund manager Eric Nuttall wrote in his firm's recently released 2025 mid-year outlook. The partner and senior portfolio manager at Toronto-based Nine Point Partners says 75 per cent of his firm's oil and gas fund has been allocated to natural gas investments since the end of May.
'We expect natural gas prices to strengthen to between $4 and $5 over the coming year, and as Canada increases its LNG capacity, we think the current discount on Canadian natural gas should fall from about $2 today to between $1.10 and $1.30,' Nuttall added. 'This poses a big opportunity for Canadian companies.'
LNG has been touted as a 'bridge' or 'transition' fuel to replace coal power in emerging economies. With new export-focused capacity ramping up around the world from the United States to Qatar, observers including the International Energy Agency have raised concerns about a glut of supply hitting the market.
While Deloitte Canada estimates four to seven years of excess demand when LNG Canada is fully operational, other analysts have floated shorter timeframes.
'We believe this will significantly impact the current Western Canadian gas balance, and estimate it will take around two years for supply to catch up with demand,' Ollenberger wrote.
Last month, TD Cowen analyst Tristan Margot called for the global LNG market to flip to oversupplied conditions after winter 2026.
'Our analysts see the incremental demand for WCSB natural gas from LNG Canada Phase 1 to be largely filled in real time,' he wrote in a June 12 research report.
'This dynamic is likely to result in continued weakness in natural gas prices through year-end,' Margot added. 'This is likely to dampen the optimism that LNG Canada Phase 1 startup is the inflection point to historically weak WCSB gas pricing. However, with producer supply-restraint in 2026+, we see a path to continued basin growth and stronger WCSB natural gas pricing.'
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on X @jefflagerquist.
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