May 3 -

The start-up of LNG Canada, the country's first such export

terminal, is likely to strain its natural gas supplies for

multiple years and force producers to reduce exports to the

U.S., where demand for the fuel is record high, companies said.

Shell-led LNG Canada has begun testing its

C$40-billion British Columbia terminal ahead of commercial

operations starting in mid-2025. The terminal will process up to

2 billion cubic feet per day (bcfd), representing 11% of current

Canadian gas output.

Like Canada, the U.S. is building more liquefied natural gas

(LNG) terminals as it produces more gas than it consumes.

However, even as the world's top gas producer, the U.S. does not

drill enough to meet both its domestic consumption plus rising

export demand.

Western Canadian producers historically have been able to

raise average production by up to 0.5 bcfd year-over-year,

indicating a temporary supply gap for U.S. and eastern Canadian

markets at the outset of LNG Canada's full operations, Jamie

Heard, vice president of capital markets at Tourmaline Oil

, Canada's biggest gas producer, told Reuters.

That estimate is based on new capacity, not year-to-year

fluctuations due to outages.

"It's going to take, in our view, up to four years to

satisfy the pull that LNG Canada by itself is providing to the

market," Heard said.

Canada exported about 8 bcfd of gas by pipeline to the U.S.

in 2023, compared with an average of 7.5 bcfd over the prior

five years, according to the U.S. Energy Information

Administration.

ARC Resources ( AETUF ), Canada's third-largest gas producer,

expects periods of lower Canadian exports to the U.S. when

supply and demand are mismatched, but those periods are likely

to be short-lived as the market re-balances, CEO Terry Anderson

said in an email.

Satisfying demand hinges on how prices compare among global

gas hubs and differentials look to be more volatile, he said.

ARC will supply gas to the Cedar LNG project, one of several

on British Columbia's Pacific coast, which is close to Canada's

vast Montney shale field and has a short shipping distance to

Asian markets.

Cedar is expected to receive final investment decision

mid-year for construction of a plant using 0.4 bcfd of gas after

opening in 2028 and Woodfibre LNG will use 0.29 bcfd after

completion in 2027.

LNG Canada, in which Malaysia's Petronas owns 25%, is

considering a second 2-bcfd phase, while Ksi Lisims LNG is

seeking government approval for what would be the country's

second-largest terminal, demanding a further 1.7-2 bcfd.

"The startup of LNG Canada opens new markets for

Canadian gas other than the (U.S.) Lower 48 ... any downturn in

the amount of Canadian gas exports to the U.S. could reverberate

across North America later this decade," said Eli Rubin, senior

energy analyst at consultancy EBW Analytics Group.

In the short-term, however, Rubin said LNG Canada will

help clear the "tremendous current oversupply of gas in storage"

in Canada and the U.S.

After a mild winter, North American gas prices are

currently low and supplies high.

Canada, the fifth-largest global gas producer, pulled a

record 18.8 bcfd of gas out of the ground in December, according

to the Canada Energy Regulator's most current data.

In the longer term, over-exuberant drillers could produce

too much gas, said Wood Mackenzie analyst Mark Oberstoetter,

adding that the consultancy sees Canadian gas output reaching 25

bcfd in the mid-2030s.

Infrastructure, particularly facilities to process raw

natural gas, needs to expand to enable more Canadian production.

Tourmaline's Heard said his company and ARC are expanding

processing capacity, but not all of the new plants needed by the

industry are yet under construction.

Export pipeline capacity may also be a constraint on

production growth as much of it is fully contracted for the next

several years, ARC's Anderson said.

Even so, problems of future higher demand are welcome for an

industry currently struggling with surplus.

"Past this current season where things look over-supplied,

we're looking into a pretty exciting market," said Jean-Paul

Lachance, CEO of Peyto Exploration and Development ( PEYUF ).