With the Ksi Lisims LNG project in British Columbia announcing two tentative deals with international customers in the last two weeks, the product would likely become available just as global markets go into a deep glut—raising questions about whether the project or its buyers will break even on the deal, The Energy Mix has learned.

“I’m not optimistic that LNG demand will completely evaporate over the next two decades, but it depends on what price,” Sam Reynolds, research lead for Asian LNG at the Institute for Energy Economics and Financial Analysis (IEEFA), told The Mix in an interview this week.

“We’re headed into a global glut of LNG. You have record amounts of supply coming online,” Reynolds said. “That glut has been postponed a little by the Iran conflict. But ultimately there may be so much supply, and demand only at prices of $3 to $5 per unit…

“At that price, there is no profitability guaranteed for the resellers of LNG.”

Yet Ksi Lisims might still be able to eke out a series of standard, 20-year contracts with buyers like Securing Energy for Europe (SEFE) and German utility Uniper taking the hit if market prices collapse.

“The project itself might not be bearing the risk of a glut, assuming it can sign enough contracts for its capacity,” Reynolds explained. “It’s the offtakers that really bear the risk. Those are take-or-pay contracts, which means they have to pay a price to the projects developers, regardless of whether they actually take the volume. So those contracts ensure that Ksi Lisims will generate enough revenue to service the debt it’s taken out to finance the project.”

Just a day before Reynolds’ comments, German utility Uniper announced its own letter of agreement with Ksi Lisims, declaring that it was “advancing discussions on potential” to buy two million tonnes of LNG per year beginning in 2032.

“Expanding and diversifying our LNG supply portfolio remains a key priority for Uniper,” CEO Michael Lewis said in a release. “Canada offers an attractive environment with significant gas resources, strong political stability, and reliable regulatory frameworks. We see potential in projects like Ksi Lisims LNG to further enhance the resilience and flexibility of our supply portfolio.”

LNG Demand Destruction: Coming Soon

But the shaky realities are sure to be in the background as Ksi Lisims LNG and prospective partners like SEFE and Uniper try to move from their preliminary memoranda of understanding toward final, binding contracts.

With a large chunk of Qatar’s LNG production offline due to the American/Israeli war on Iran, global gas prices are expected to stay high for the next couple of years, Reynolds said. But even if Ksi Lisims were to attract the investors it needs and confirm a final investment decision tomorrow, the project would take four or five years to build.

“At four years out, let’s say Qatari LNG production is fully back online,” he explained. “The Strait of Hormuz is reopened. Only at that point would Ksi Lisims be entering the market, and they would be entering the market under an LNG glut,” based on projects already under construction in the United States, Qatar, African countries, and Canada.

So while “the short-term gains over the next year or two might look tempting,” a more realistic timeline “could mean really bad news for those trying to resell volumes from this project.”

As far back as mid-April, Reynolds was reporting that the disruption in the Strait had “done lasting damage to LNG’s reputation as a viable ‘transition fuel’ from coal to clean energy,” adding that importing governments’ reactions to the crisis “may lead to longer-term LNG demand destruction.” And “portfolio” buyers in positions similar to SEFE have begun acknowledging the risk.

• “These geopolitical shocks…send the wrong signals to customers around the long-term fundamentals of gas,” Shell’s president of integrated gas, Cedric Cremers, told the fossil industry’s annual CERAWeek conference in March.

• “The volatility in price is probably the biggest risk for industry,” Ben Dell, managing partner at U.S. private equity firm Kimmeridge, told an event that month hosted by the U.S. Trade and Development Agency.

• “If we end up more weeks or months in—we are already cutting bone—we will be cutting really deep bone,” declared Alisa Newman Hood, general counsel with U.S. LNG developer Excelerate. “We need LNG to be dependable in order for [governments] to depend on it and not end up in demand destruction.”

• “This latest shock to the global LNG supply could permanently change global consumption to other energy sources to avoid future shocks,” analysts at S&P Global wrote in early April, in reaction to discussions at CERAWeek. “In particular, should regional public policies shift away from natural gas and toward coal or renewables, Asia LNG demand growth may not resurge even under sequentially lower natural gas prices.”

• Even in January, before the war on Iran began, U.S. LNG exporter Venture Global admitted in its prospectus for a public offering that its market case might be in doubt. “In addition to natural gas, LNG also competes with other sources of energy, including coal, oil, nuclear, hydroelectric, wind, and solar energy,” the company wrote.

“As a result of these and other factors, LNG may not be a competitive source of energy internationally. The failure of LNG to be a competitive supply alternative to local natural gas, oil, and other alternative energy sources in markets accessible to our customers could adversely affect the ability of our customers to deliver LNG from the United States or from our projects on a commercial basis.”

By early April, that demand destruction was beginning to take shape as Asian energy importers like Pakistan, Vietnam, Indonesia, and South Korea accelerated their shift to renewable energy or introduced more aggressive energy efficiency measures. More recently, gas usage has peaked and gone into decline in Australia, South Korea has committed to halve its annual fossil-fuelled electricity bill by adding 100 gigawatts of new renewable energy by 2030, and an Australian company operating in the Philippines decided to abandon a long-delayed LNG-fuelled power plant and sell its gas turbine to a company in the U.S.

Meanwhile, Oslo-based Rystad Energy concluded this week that the Middle East war “has erased around one billion barrels of cumulative crude supply from global markets in the three months since the first shots were fired,” industry newsletter Rigzone reported Wednesday evening.

“Cumulative losses have now reached one billion barrels and are on track to nearly double by year-end under our base case, which still assumes a narrow U.S.-Iran deal in June and a phased reopening of the Strait of Hormuz from mid-July,” said Aditya Saraswat, the company’s research director for the Middle East and North Africa (MENA). “Each additional month of conflict adds roughly 350 million barrels to cumulative losses, with a growing share that will never come back.”

Fool Me Twice

In replies to questions from The Mix and Berlin-based Clean Energy Wire, SEFE spokespeople stated that “Europe continues to require flexible gas supplies to meet industrial demand and to complement renewable energy generation.” But they also confirmed that Free On Board (FOB) supply contracts like the company’s preliminary agreement with Ksi Lisims LNG “give SEFE the flexibility to direct supplies where they are most urgently needed, particularly should European demand decline in the long term”—implying that the company may find itself depending on Asian markets as European demand fades.

SEFE declined to answer Clean Energy Wire’s questions on whether an eventual contract with Ksi Lisims will include a “fixed price path”, or on the factors still to be resolved in a final agreement. Asked by The Energy Mix whether SEFE will want contract language allowing it to terminate the contract early, a spokesperson replied that “we do not provide information on ongoing contract negotiations.”

But Richard Brooks, climate finance specialist with Stand.earth, said the combination of booming LNG supply and declining demand is already shifting LNG buyers’ perspectives.

“Many countries do not want to be fooled twice by a conflict disrupting their economies with serious consequences. This means the real business case for West Coast LNG is weakening,” he told The Mix in an email. “Canada’s LNG will not be treated differently than LNG from other suppliers. There is no price premium or preferred access for so-called lower-carbon gas—even if it is real—nor is there a premium on gas from a more stable country like Canada. LNG prices are set globally, and Canada cannot control this.”

The recent round of government announcements “reveals a lot,” Brooks said. “Neither SEFE’s nor Uniper’s announcements are legally binding,” and “the fundamentals of this $26-billion project have not changed. It still requires a 900-kilometre greenfield pipeline across difficult land and multiple First Nations communities’ traditional and unceded territories. The projects still face significant legal and Indigenous opposition. The project proponent still does not have a portfolio of proven projects delivered on time. In fact, they have no existing projects to speak of.”

If the project “could stand on its own two legs,” he added, “it would not require a dollar from the government, government PR, and a Major Projects Office to move it forward.”

“This announcement is better understood as a political move for both countries than a genuine advancement in energy security,” said Alex Walker, energy analytics program manager at Environmental Defence Canada. “For Ottawa, this signals further momentum of the nation-building agenda. For Germany, it helps prove the value of the state-owned Uniper ahead of its sale, reassuring prospective buyers such as the Canada Pension Plan that the company holds long-term supply commitments.”

But “the reality on the ground is more complicated,” Walker told The Mix in an email. “Ksi Lisims remains a foreign-built, foreign-owned project that has struggled to attract investors for over a decade. It’s a highly polluting fossil fuel project with multiple pending legal actions due to lack of Indigenous consent. Despite what the headlines say, this project is far from a Canadian nation-building project waiting to happen.”

On Tuesday, the lead developer behind the Ksi Lisims project, Houston-based Western LNG, announced it had reached benefit agreements with the Metlakatla First Nation, Lax Kw’alaams Band, and Gitxaala Nation, and that Metlakatla and Lax Kw’alaams had withdrawn legal challenges to the project. But Hereditary Chief Luutkudziiwus, also known as Charlie Wright, of wilp Luutkudziiwus, a house of the Gitxsan Nation, said the wilp remains opposed to the $10-billion Prince Rupert Gas Transmission (PRGT) pipeline, which would feed gas to Ksi Lisims.

“We have not signed a benefits agreement for PRGT,” he said in a statement emailed to The Energy Mix. “We are challenging the Province’s substantial start decision that enables the Prince Rupert Gas Transmission line to proceed through our territory, because it will have irreversible consequences on our culture, identity, and livelihood as Gitxsan people.”