EMC Working Papers

The shale gas revolution has made the United States, Canada’s only customer of its natural gas exports, the number one competitor of Canada. Therefore, finding an alternative natural gas customer overseas is crucial for the Canadian economy. However, the country is unable to do so due to an absence of LNG export terminals in the short term. At the same time, a window for new market entrants has opened in China from recent deregulation of its natural gas import barriers and an increase in demand.

This paper proposes to export Canadian natural gas to China through the U.S. in the short run in order to secure long-term contracts. It starts by examining the operational feasibility of the proposal by looking at the market conditions of China and Canada, to see whether the stakeholders will welcome to the proposed idea. Then it explores the economic feasibility in terms of price differential between America and China vis-à-vis the overall cost of delivering Canadian natural gas to China after the expansion of the Panama Canal.

This research findings suggest that Canadian natural gas producers can consider this method because it is operationally and economically feasible. This implies that Canada could potentially maintain or even increase its natural gas export level if Canadian natural gas producers would pursue this path. If so, it would largely benefit the Canadian economy and its natural gas industry.

Lastly, this paper examines the current natural gas pricing dynamics between North America and Asia, particularly looked at how the Panama Channel expansion affected global LNG pricing, and concluded that LNG price gap between North America and Asia will become narrower over time as a result of this expansion.