Weighing Canada’s LNG ‘Trilemma’

When the first ship set sail from the LNG Canada terminal on June 30, 2025, it marked a new era for Canada. This was the moment when we joined a handful of nations as exporters of Liquefied Natural Gas (LNG), a fuel source that has rapidly gained prominence in the new world energy order.

Canada’s entry onto the LNG stage raises some important questions:

How critical are LNG exports to helping Canada fulfil its energy leadership ambitions?
Is Canadian LNG the key to energy resilience and security for nations who have had their traditional natural gas supplies disrupted?
And especially important for responsible investors, can LNG become a ‘bridge fuel’ to renewables and a facilitator of long-term decarbonization of the world’s energy system?

The role of LNG in the future global energy mix

Rising interest in LNG is tied to steadily rising global demand for energy. Demand drivers include economic growth and industrialization in developing markets, the global shift to electrification of transport and heating, and the need to support the power demands of AI-driven data centres. The root driver, however, is population growth. Global population is expected to reach nearly 10 billion people by 2050, with a good chunk of that in the expanding urban centres of Asia and Latin America. LNG has a crucial role to play in responding to this demand. But to fully understand that role, LNG must be considered through the lens of what has been coined the energy ‘trilemma’: the three different and often opposing factors of affordability, security and sustainability.

LNG’s uneven sustainability advantage

Let’s begin with the most important consideration for the RIA’s audience: sustainability. Of all fossil fuels, natural gas is the cleanest burning, emitting about 45% less CO2 than coal. If reducing carbon emissions is the core goal, gas is an attractive option for coal replacement. In fact, in select regions where gas has replaced coal, system wide emissions have been reduced significantly.

Could expanded use of LNG help reduce carbon emissions globally? The Fraser Institute contends that if Canada were to double its current natural gas production and export the additional supply to Asia as LNG deployed as a direct and equivalent replacement of coal, global GHG emissions could be reduced by up to 630 million tonnes annually, a reduction equivalent to 89% of Canada’s total GHG emissions. With several countries set to significantly expand their LNG export capacity, the potential for GHG reductions is substantial. But it is potential only.

Answering the LNG bridge fuel question: it’s not so simple

Viewing LNG solely through a sustainability lens ignores the fact that the world doesn’t just need more LNG, it needs more energy from all sources. That’s just one challenge to the ‘bridge fuel’ thesis. A second is estimating just how long that bridge needs to be: too long would increase dependency on natural gas and LNG, potentially reducing investment in renewable energy sources. Additionally, natural gas and LNG are not equal: processing LNG adds considerable emissions beyond those occurring in the traditional natural gas supply chain. Furthermore, methane leakage (methane is both the primary constituent of natural gas and the second most significant greenhouse gas, with a potential impact on global warming that is 28 times greater than that of carbon dioxide over a 100-year period) is especially pronounced with LNG. Produced through a series of separate systems, LNG presents multiple opportunities for methane leaks. Although these risks can be managed, they cannot be eliminated.

Is LNG secure and affordable?

Which brings us to considerations of energy security and affordability. Europe is considered a strong market for LNG, despite the EU’s longstanding climate commitments. Yet it is security considerations that now dominate the energy agenda, as they increasingly do across all regions in our disrupted world. The two factors are complementary. Expanded renewable energy reduces the need for natural gas, reinforcing Europe’s principle to avoid dependence on energy it doesn’t have – the very definition of energy security. [1]

The far more promising market is Asia, where LNG consumption is predicted to double by 2050, driven by economic growth and limited access to pipeline-delivered natural gas. But applying the LNG trilemma in Asian markets is complex. China is both the world’s biggest coal user and the world leader in renewable energy. And in other markets, such as India, shifting away from coal may not even be a practical option. Many countries in Asia are also opportunistic buyers of energy based on price, which diminishes the importance of sustainability factors in energy buying decisions. [2]

The potential impact of a rapidly expanding global LNG supply

Against this backdrop, the global LNG industry is expanding rapidly, with plans to add almost five times as much new liquefaction capacity from 2025 through 2028 compared to the previous four-year period. This rapid expansion presents an obvious saturation risk, with the IEA projecting a supply overhang that could “depress international gas prices and set the stage for fierce competition between suppliers”. It is unclear whether demand will be enough to close that gap, especially with anticipated advancements (and cost reductions) in renewable technologies and battery storage.

The cold reality of Canada’s LNG ambitions

So, what does this mean for Canada? It took a long and contentious 15 years to take the inaugural LNG Canada facility from licensing and permitting to shipping the first tanker-load of LNG. Over the same period, the U.S. alone constructed LNG export facilities totaling eight times the exporting capacity of LNG Canada. Canada may have geographical advantages, may produce its LNG with a lower carbon footprint, and LNG may (if methane is managed properly) produce emissions significantly lower than thermal coal, but buyers will weigh affordability, security and sustainability factors unevenly and dynamically.

To win in LNG, Canada will need demand for all types of energy to continue to spike (especially in Asian markets where Canada holds a geographic advantage for shipping LNG) and be able to accelerate building LNG infrastructure to meet this need. Given LNG’s history in Canada, the latter is far from certain. Additionally, unaddressed here in detail, but an essential consideration is the consent and participation of Indigenous peoples in Canada’s LNG plans. Responsible investors must also consider the implications of a potential time-mismatch: when LNG assets built with a 30- to 50-year lifespan intersect with the anticipated rapid integration of renewables, stranded assets become a significant risk.

In short, LNG is no slam dunk. But, after the lengthy delays that brought Canada late to the LNG party, the first ship, laden with a promise far weightier than its cargo, has finally sailed. Canada is now officially in the LNG game.

References

Interview with Luke Sussams – Jefferies
Interview with Baltej Sidhu – National Bank

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Author

David Rutherford

AVP, Research

Mackenzie Investments

David Rutherford is the Vice President, Product Marketing, Asset Management for Aviso Wealth. He is responsible for shaping NEI’s position as Canada’s Responsible Investment leader in the retail investing space. David has nearly 20 years’ experience in marketing and communications at a number of leading financial services firms including CIBC Wood Gundy, Franklin Templeton Investments and Mackenzie Investments.