Key Takeaways
- Europe has replaced approximately 120 billion cubic metres of annual Russian gas imports with LNG from the U.S., Qatar, and Australia.
- European LNG import terminals have expanded capacity significantly since 2022, creating structural demand for LNG supply.
- LNG Canada Phase 2, if sanctioned, would add another 14 million tonnes per year of Canadian LNG export capacity.
- The economics of Phase 2 are attractive at current Asian and European LNG prices $10-12/MMBtu versus $4.50/MMBtu North American.
- Canadian producers Tourmaline, ARC Resources, and Peyto are positioning acreage and production to supply Phase 2 feedgas.
The geopolitical shock of 2022 Russia’s invasion of Ukraine and the subsequent collapse of Russian gas flows to Europe created a structural reshaping of global LNG markets that is still playing out. Europe replaced approximately 120 billion cubic metres of annual Russian pipeline gas with LNG, building import terminals at a pace not seen since the 1970s and creating a new, persistent source of global LNG demand.
Europe’s LNG Dependency Is Structural
European countries built substantial new regasification capacity in 2022-2024 floating storage and regasification units (FSRUs) in Germany, Poland, the Netherlands, and Italy brought an estimated 80+ billion cubic metres of annual import capacity online in less than three years. This infrastructure is not being dismantled. Europe is structurally dependent on LNG imports for the foreseeable future, regardless of the geopolitical situation with Russia.
The buyers of European LNG are utilities and traders who prefer supply diversification. Canadian-origin LNG which would travel through LNG Canada to Asia, displacing Qatari and Australian LNG that in turn flows to Europe is a meaningful part of the global LNG rebalancing picture.
The LNG Canada Phase 2 Opportunity
LNG Canada Phase 2, if sanctioned by the joint venture partners, would replicate the Phase 1 infrastructure at Kitimat adding two more liquefaction trains and approximately 14 million tonnes per year of capacity. The total project cost for Phase 2 is estimated at $12-15 billion. The economics are compelling at current LNG prices: European and Asian spot LNG trades at $10-12/MMBtu, versus $4.50/MMBtu at Henry Hub and $3.50/MMBtu at AECO.
“Phase 2 of LNG Canada is not a question of whether it is a question of when. The economics are unambiguous at current global LNG prices. Shell will sanction this project.” BMO Capital Markets, Energy Infrastructure Note, May 2026
The sanctioning timeline for Phase 2 depends primarily on Shell’s capital allocation priorities globally and the continued availability of Montney feedgas supply commitments from Canadian producers. Both conditions appear increasingly favorable. BMO Capital Markets estimates a Phase 2 FID decision could come as soon as Q4 2026 or Q1 2027.
TSX Equity Implications
A Phase 2 sanction would be a significant positive catalyst for the entire Canadian natural gas sector. Producers with northeastern B.C. Montney acreage particularly Tourmaline, ARC Resources, Canadian Natural Resources, and Peyto Exploration would benefit from increased demand for feedgas supply agreements and the associated pricing uplift. Pipeline companies TC Energy and Pembina Pipeline, which own or have interests in the Coastal GasLink infrastructure, would also benefit from increased throughput.