Germany’s Big LNG Deal With Canada May Never Deliver A Single Cargo

Authored by Andrew Topf via OilPrice.com,

• Germany has signed long-term LNG offtake agreements with Canada’s Ksi Lisims project, seeking energy security and supply diversification amid heightened geopolitical risks.

• Despite the deals, Canadian LNG may never physically reach Germany due to geography, shipping economics, and the lack of Atlantic Coast export infrastructure.

• Instead, Germany could use LNG cargo swaps, sending Canadian gas to Asian buyers while receiving equivalent volumes from suppliers closer to Europe.

The Iran war has made supplies of liquefied natural gas, or LNG, the most strategic since Russia’s invasion of Ukraine in 2022.

Suddenly, countries are scrambling to get their hands on molecules that provide reliable baseload power to industries and homes.

That explains why Germany is buying LNG from Canada. It’s to ensure long-term energy security, reduce reliance on volatile global supplies, and diversify away from Middle Eastern and Russian energy markets.

At the end of May, the Canadian government brokered a deal between the Ksi Lisims LNG facility planned for north of Prince Rupert, on the British Columbia coast, and German company SEFE, which is agreeing to buy 1 million tonnes of LNG per year for up to 20 years

Ksi Lisims LNG is a joint venture owned by the Nisga’a Nation, Texas-based Western LNG, and Rockies LNG, a consortium of Canadian natural gas producers.

The agreement marked the first long-term LNG supply arrangement between a Canadian project and a European buyer.

On June 8, a second, preliminary deal was announced. Germany’s Uniper signed a letter of intent with Ksi Lisims LNG for a possible offtake agreement of 2 million tonnes of LNG per year.

Construction of the facility, which has an annual capacity of 12 million tonnes, could begin in 2027, although there some significant hurdles to overcome.

First and foremost is a Final Investment Decision. To get an FID across the line, Ksi Lisims must show there is enough demand to start construction. The JV already has binding offtake agreements with Shell (NYSE:SHEL) and TotalEnergies. With SEFE and Uniper, up to 7 million tonnes have been annually committed. Will that be enough, and will the facility be profitable in a future LNG market? Ksi Lisims must decide.

The $10 billion project is also facing political and legal challenges about the environmental impacts increased gas production and shipping will have on the area:

Two B.C. Supreme Court petitions were filed over the provincial government’s decision last year to deem the Prince Rupert Gas Transmission pipeline “substantially started,” meaning it wouldn’t need a new environmental assessment.

The liquefied natural gas pipeline’s construction, which was authorized in 2014, and a deadline to start it was extended to 2024, spurring the court challenges from Gitxsan Hereditary Chief Charlie Wright and environmentalist groups opposed to the project.

Construction started in 2024 but the pipeline is not yet finished.

These are all significant obstacles, but the bigger question is how Ksi Lisims would get the LNG from the Canadian West Coast to Germany.

Opposition Leader Pierre Poilievre has said the better option would be to ship it from the east coast. But there are currently no operational LNG export plants on that side of Canada; only an import and peaking facility in New Brunswick owned by Repsol.

The only large-scale LNG facility in operation is LNG Canada in Kitimat, close to the proposed Ksi Lisims plant. The first phase of LNG Canada was finished in 2025; a year ago it loaded its first export cargo.

When asked why Ottawa wouldn’t pipe LNG across the country, then ship it directly across the Atlantic to Germany, the energy minister said it’s cheaper to move the product by water — through the Panama Canal — than it is to pay tolls through a pipeline.

In practice, Germany may never receive LNG directly from Ksi Lisims, despite the project signing two separate offtake agreements.

Instead, the German companies could employ a concept that is becoming increasingly common in LNG markets: cargo swaps

Here’s how it works:

Instead of purchasing the LNG and physically delivering it to Germany, the companies would purchase the cargo and redirect it to buyers in Japan, South Kora, Taiwan or other Asian markets. In exchange, the companies would receive LNG from suppliers closer to Europe, like the US, Qatar, Algeria or Norway.

The result, says EnergyNow via the Financial Post, is lower shipping costs, shorter transit times, reduced congestion risk, and greater flexibility while maintaining the same overall gas supply balance.

This is already how major LNG portfolio players such as Shell, TotalEnergies, BP, and SEFE manage global supply chains. LNG contracts increasingly represent access to molecules rather than a commitment to move specific molecules from one point to another.

In the end, “the molecule doesn’t matter as much as the contract.”

A Canadian LNG contract provides supply from a stable democracy, reduced exposure to political disruptions, diversification from a single supplier, and long-term contractual security, states EnergyNow.

Reuters previously reported that German buyers are increasingly interested in acquiring Canadian LNG cargoes specifically because they can be swapped within global markets. Canadian Energy Minister Tim Hodgson noted that European buyers see value in holding Canadian LNG positions even if the fuel is ultimately consumed elsewhere.