The intensifying competition in the 2024 international natural gas market

On January 26, 2024, the Biden administration in the United States issued a statement announcing a pause on approvals for new liquefied natural gas (LNG) export projects. On the same day, the U.S. Department of Energy released a document detailing the current status of U.S. LNG exports and outlining its upcoming assessment process. Subsequently, 16 U.S. states—including Louisiana, West Virginia, Oklahoma, Texas, and Wyoming—jointly filed a lawsuit, arguing that the Biden administration’s decision harmed local economies and that the pause violated the Natural Gas Act of 1938. On July 1, 2024, U.S. District Judge James Cain of the Western District of Louisiana ruled that the U.S. government’s LNG export pause would be “immediately and fully suspended.” As a result, the U.S. government’s export pause did not halt LNG investors’ investment activities or their global efforts to secure buyers. In 2023, U.S. LNG investors signed new LNG sale-and-purchase agreements (SPAs) and letters of intent (LOIs) totaling 94 million tonnes per annum (MTPA), achieving outstanding sales performance. According to a September 2024 LNG report by industry consultancy Wood Mackenzie, during the first nine months of 2024, U.S. LNG investors signed SPAs, capacity reservation agreements, and LOIs totaling 58 million tonnes per annum. Wood Mackenzie’s report highlights several notable trends in U.S. LNG sales in 2024. First, traditional buyers (end users) secured long-term contracts covering 38 million tonnes per annum in their domestic markets—only 12 million tonnes per annum less than last year’s record. Second, large-scale deals once again dominated: 60% of contracts signed this year each exceeded 2 million tonnes per annum. Meanwhile, although the pause led to an overall decline in signing volume, U.S. deal activity continued. In the first eight months of 2024, the U.S. signed new LNG SPAs and LOIs totaling 18.9 million tonnes per annum—including a 5-million-tonne-per-annum deal with Saudi Aramco—focusing more heavily on projects less affected by the pause. Representative transactions include a 1.9-million-tonne-per-annum agreement between the Grande River LNG Project’s Train 4 and Abu Dhabi National Oil Company (ADNOC), and a 1.2-million-tonne-per-annum deal with Saudi Aramco; the Texas LNG Project also signed a 3-million-tonne-per-annum facility-use agreement, SPA, and LOI with EQT Energy and engaged other counterparties, as the company seeks to meet the commercial threshold required to secure debt financing for its project. In April 2024, Canada’s Red Cedar LNG Project signed its second 20-year LNG agreement with Pembina Pipeline Corporation, for 1.5 million tonnes per annum—following a similar agreement signed with ARC Resources in 2023. The Woodfibre LNG Project secured its third—and final—agreement with BP, thereby fully booking its production capacity. The Texas-based Mexico Pacific LNG Project has likewise completed marketing for the first three LNG trains.

M&A boom shaking Canada’s oil and gas industry

Canada’s energy industry can afford to be opportunistic: having significantly strengthened its balance sheets and repaid debt over the past two years amid rising oil prices. With the Trans Mountain Pipeline (TMX) expansion—from Alberta to British Columbia—set to begin operations next month, the price of Western Canadian Select (WCS) heavy crude from Alberta is expected to rise relative to the U.S. benchmark WTI this year. Higher pipeline capacity means Alberta’s oil producers will enjoy pipeline transportation capacity exceeding their production capacity for the first time in nearly a decade. Over recent months, Canada has completed several transactions, including Baytex Energy’s $2.2 billion acquisition (including debt) of Ranger Oil Corporation; Crescent Point Energy’s acquisition of Hammerhead Energy; and ConocoPhillips’ approximately $2.7 billion cash acquisition of TotalEnergies’ remaining 50% stake in the Surmont project. According to GlobalData’s transaction database, the Canadian oil and gas industry announced 27 M&A deals worth $4.2 billion in Q4 2023. In value terms, M&A activity in Canada’s oil and gas sector rose 20% quarter-on-quarter and surged 95% year-on-year in Q4 2023. Since 2022, the two largest deals in Canada’s oil and gas industry occurred in 2023: ConocoPhillips’ acquisition of TotalEnergies’ stake in Surmont, and Pembina Pipeline’s acquisition of minority interests in Alliance Pipeline, Aux Sable Canada, and NRGreen Power Limited Partnership. In October, Tom Pavic, President of Sayer Energy Advisors, told Canadian media: “I think you’ll definitely see more consolidation. I think there will be more deals.” At the start of 2024, bankers and analysts continued to expect further energy transactions in Canada. Brad Wells, Head of Energy at BMO Capital Markets, told Bloomberg in an interview this week that U.S. companies—particularly private U.S. firms—have shown growing interest in acquiring Canadian oil and gas assets over the past year. Wells noted that while Canadian companies do not need to add inventory, their healthy balance sheets may prompt them to pursue opportunistic transactions backed by sound economic and strategic rationale. He added that, given the opportunistic nature of such deals, it is difficult to predict when Canada’s next major merger will be announced.

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