Exclusive-European Buyers Hold Talks to Ship Canadian Lng via Panama Canal to Diversify Supply

Exclusive-European buyers hold talks to ship Canadian LNG via Panama Canal to diversify supply

European Interest in Canadian LNG Exports Amid Geopolitical Tensions

By Amanda Stephenson

Background: European Buyers Seek Supply Diversification

CALGARY, April 15 (Reuters) - European buyers, including Germany's Uniper, are exploring the possibility of purchasing liquefied natural gas from Canada's Pacific coast and shipping it through the Panama Canal as part of a long-term strategy to diversify supply, an effort made more urgent in the wake of the Iran war, two sources familiar with the matter said.   

Commercial Talks with Ksi Lisims LNG

Three sources said European buyers are among the potential customers that have had commercial talks with Canada's Ksi Lisims LNG, a proposed liquefied natural gas export terminal whose backers have been working to finalize contracts with purchasers before making an expected final investment decision this year.

Challenges of Shipping Canadian LNG to Europe

The interest in Ksi Lisims from potential European customers — who include state-owned German energy group Uniper, according to two sources — is significant, as Canada's burgeoning LNG export industry is geographically more suited to supplying Asia and tolls and shipping time through the Panama Canal will increase costs.

All of Canada's existing and emerging LNG export capacity is located on the country's west coast, offering short shipping times to Asian buyers, while its east coast has virtually no infrastructure beyond Repsol's <REP.MC> Saint John terminal.

Lack of infrastructure has long been seen as a barrier to Canada supplying any meaningful amounts of LNG to Europe. But a source familiar with the Ksi Lisims LNG project said the current Middle East conflict means European buyers are considering accepting the costs and longer transit time of shipping through the Panama Canal in order to diversify their supply sources to a stable, democratic jurisdiction like Canada.

"Since the war in Iran started, there has been especially strong interest in (Ksi Lisims) offtake from LNG buyers all around the world, including from Europe," the source said.

Uniper and Germany's LNG Strategy

Uniper declined to comment. Reuters reported in March that the German company was in talks with Canada at a corporate and political level to expand its liquefied natural gas purchases. The United States accounted for 96% of Germany's LNG imports last year, and two sources said Ksi Lisims is seen having potential when it comes to diversifying that supply.

Ksi Lisims LNG Project Timeline and Stakeholders

The Ksi Lisims project is not an immediate solution to Europe's energy needs. Even if its proponents — Houston-based Western LNG; a consortium of Canadian natural gas producers called Rockies LNG; and the Nisga'a First Nation, who own the land for the project — decide to go ahead, it will be in construction for several years. 

However, the project has been referred by the Canadian government to Canada's major projects office for fast-tracking. Prime Minister Mark Carney has sought to speed up natural resource project permitting to boost an economy that has been threatened by U.S. trade policy.

Shell <SHEL.L> and TotalEnergies <TTEF.PA> have already signed 20-year LNG purchase agreements with Ksi Lisims. 

Growing European Demand for Canadian LNG

Canada's Energy and Natural Resources Minister said in August German companies are looking to buy and swap Canadian LNG cargoes. But now, they are also interested in taking shipments of the physical Canadian product, the sources said.  

Canada's LNG as a Low-Risk Supply Option

Canadian LNG is among the world's lowest-risk, said Charlotte Power, a spokeswoman for Canada's Energy Minister Tim Hodgson who has been traveling the world in recent months pitching his country as a reliable, democratic supplier of energy.

"As our allies in Asia, Europe and beyond are looking to strengthen their energy security and reduce reliance on coercive actors, Canada stands out as a partner of choice for LNG," Power said in an email.

Market Impacts and Economic Rationale

The Iran war and the resulting Strait of Hormuz closure have made it increasingly likely that Ksi Lisims gets built, said Jamie Heard, vice president, capital markets for Tourmaline Oil, one of the Rockies LNG partners behind the project.

He said Western Canadian natural gas prices continue to lag behind the U.S. benchmark, making a strong business case for Canadian LNG.

"The economic rationale is there, these projects can pay themselves off quite quickly with spreads at that level," Heard said in an interview.

(Reporting by Amanda Stephenson in Calgary; additional reporting by Christoph Steitz and Marwa Rashad; Editing by Caroline Stauffer and Nick Zieminski)