Developers of Canada’s $30 billion Ksi Lisims liquefied natural gas project have signed a 20-year deal with Australian gas giant Santos for delivery of 1 million tonnes a year, the third contract announced this year as the controversial project heads toward a final investment decision this year.
The non-binding, preliminary contract — known as a heads of agreement — brings total offtake sales from the coastal BC project to two-thirds of its planned 12 million tonnes per annum (mtpa) export capacity, though only 6 million tonnes are locked in under finalized sales and purchase agreements.
However, skyrocketing construction budgets, an unbuilt pipeline to feed the project’s floating export terminal, and fears of a looming global gas glut continue to cast a shadow over Ksi Lisims, one of 167 projects listed in the Canada Investment Summit prospectus this week.
“Santos’ decision to secure long-term supply from Ksi Lisims LNG reflects a shared commitment to responsible energy development and a clear view that supply diversity is essential to long-term energy security,” said Davis Thames, CEO of Texas-based Western LNG, which is developing the project with BC’s Nisga’a Nation and Western Canadian gas producer group Rockies LNG.
Santos’ mulled sales agreement for the project “reflects a growing global role for reliable, low-carbon, Canadian LNG,” Thames said, adding that the agreement “is a strong signal of confidence in our project as we move into the final stages of commercialization and toward a final investment decision.”
Energy and Natural Resources Minister Timothy Hodgson said the agreement – coming as investors managing $120 trillion in capital attended the Canada Investment Summit in Toronto, “shows that it is our moment — if we choose to seize it” to expand Canada’s LNG exports.
“Amidst energy market disruptions, international demand for reliable energy only continues to grow, and projects like this — developed in partnership with Indigenous Peoples and providing best-in-class low-carbon energy — demonstrate how Canada can be a leading energy superpower for years to come,” he said, in a statement.
Shell-led LNG Canada, the country’s first LNG export terminal, opened last year in Kitimat, BC. Ottawa has issued export licences to four other LNG projects in the province (see factbox below), aiming to more than triple export capacity to 50 million tonnes a year from 14 million, backed by supply contracts with buyers in Southeast Asia, Europe and India.
Additional LNG projects have been proposed in the Atlantic provinces, including the Kino Aski development.
Cost overruns draw scrutiny
The Institute for Energy Economics and Financial Analysis (IEEFA) and other energy analysis groups warn that Ksi Lisim faces mounting financial risk due to volatile market demand and spiralling project costs. The project’s original capital budget of $9 billion has more than tripled and the price of its linked 750-kilometre Prince Rupert Gas Transmission line has doubled to $12 billion.
“The real risk for a project like Ksi Lisims is being able to scale its infrastructure hurdle — the project remains without a key feeder gas pipeline — and also to contend with a tidal wave of new LNG supply hitting the market around the same time as its target in-service date,” IEEFA senior analyst Mark Kalegha said.
“The combination of potential lower future prices and high construction costs could pressure investor returns in the project,” he said in an analysis of Canada’s LNG ambitions published ahead of the investment summit.
Canada and its institutional backers are in jeopardy of missing the “underlying market dynamics at work” and walking into “a classic market ‘bull trap’ — mistaking brief or transient market conditions for lasting, structural shifts in long-term fundamentals,” Kalegha said.
“Securing preliminary offtake for Ksi Lisims is one thing; the escalating budget — even before construction commences — continues to raise questions about economic viability and risks to shareholders,” he said.
Structural market decline fears
Many analysts are concerned Canada is targeting Asian LNG markets just as demand growth is entering a period of structural decline. China, South Korea, and Thailand are currently weighing plans to favour renewables over gas imports amid a turbulent oil and gas market due to the US-led war on Iran that began in February.
Global LNG producers led by the US are set to add more than 220 million tonnes of new liquefaction capacity by 2030 — a 40 per cent surge in worldwide supply that could depress market prices as Ksi Lisims enters service.
Canada’s portfolio of LNG export projects will add up to nearly $110 billion in proposed capital spending for a production capacity of more than 50 million tonnes a year. And they are all located on the Pacific coast.
This includes LNG Canada phase 2 — a multi-billion-dollar expansion of the existing export complex and infrastructure project in BC — and the province’s $8 billion Cedar LNG terminal, owned by the Haisla Nation and Pembina Pipeline, due to start exporting in 2028.
Both are understood to be among the leading “nation building” projects being considered by Prime Minister Mark Carney.
Another facility in BC, Woodfibre LNG, billed as set to become North America’s first “hydropower-backed LNG facility” when it starts-up in 2027, is not believed to be on the Liberals’ mega-project shortlist.
However, the worrying worldwide trends for Canada’s embryonic LNG strategy have been compounded by project headaches at home.
Rising construction costs and permit delays have overshadowed Woodfibre, 30 per cent owned by Calgary-based oil and gas developer Enbridge and 70 per cent by Asia-based Pacific Energy. Enbridge has reiterated its confidence in the Woodfibre project near Squamish, and the international LNG market.
Cedar LNG, backed by $200 million in subsidies from the BC government and up to another $200 million from the feds, will create jobs (500 during construction and 100 full-time positions after completion), generate revenue and emit less carbon pollution than other similar projects, Premier Eby has said.
But the project has divided Indigenous communities and drawn fire as a fossil fuel handout that could saddle taxpayers with additional legal and economic risks after a landmark international ruling.
At Kitimat, the project has struggled to ramp up to full capacity export of 40,000-50,000 tonnes of gas from the terminal, forcing delays as ships waited moored at the facility, Reuters reported late last month.
LNG Canada has dispatched six tankers so far and “production will continue to increase as we move through early operations and into a regular shipping cadence,” spokesman Brian Hutchinson told Canada’s National Observer.
The project partners — Shell, Malaysia’s Petronas, PetroChina, Japan’s Mitsubishi Corp, and Kogas of South Korea — expect to load one cargo from the terminal every two days for export to Asia once the facility is fully operational, he said.
Global LNG spot prices hit their highest levels in more than three years as the closure of the Strait of Hormuz bottled up almost 20 per cent of the market’s exported volumes, IEEFA said, but that spike was driven by geopolitical volatility rather than structural increases in gas demand.
“Capital-intensive LNG projects are multi-decade operations that require long-term stability in demand, supply, and prices,” Kalegha said. “To materially improve returns, elevated market conditions must persist for a significant portion of a terminal’s operating life – not just a few months or years.
Newbuild LNG project costs in Canada are “exceptionally high due to factors such as remote geography and infrastructure costs,” he said, and “conflict-related spot price spikes will not solve these structural capital hurdles.”
Santos follows earlier deals with German gas importers Uniper — which was bailed out and nationalized in 2022 after a near financial collapse — and Secure Energy For Europe (SEFE), a former subsidiary of Russia’s Gazprom seized and renamed by Berlin that same year. International oil giants Shell and TotalEnergies have signed purchase deals as well.
Grave environmental impacts
Climate advocacy groups continue to raise the alarm over the potential severe environmental impacts from the Ksi Lisims project, criticizing federal and provincial governments for locking in long-term fossil fuel production in an era of accelerating climate disasters.
Proponents argue Ksi Lisims will set a new standard for “clean”, low-carbon LNG because the liquefaction facility will be powered by electricity from BC Hydro’s hydropower-fed grid.
But research studies, including from the IEEFA, question the provincial utility’s capacity to supply the required 600 megawatts on time for the Ksi Lisim terminal’s planned start in 2032.
Should grid connection delays force the facility to rely on natural gas for power, the project’s capital costs would rise by $2 billion and greenhouse gas emissions surge by an estimated 1.8 million tonnes of CO₂ a year, according to IEEFA.
A new report from Stand.earth, a climate advocacy group, said Ksi Lisims LNG “fails every test for the kind of national infrastructure Canada should be building right now,” calling it a “late and overpriced” megaproject with “few lasting benefits for Canadians” given its reliance on foreign labour and steel and the “small number” of permanent jobs it would create.
“During a trade war of increasing intensity, why would Canadians funnel taxpayer dollars into Ksi Lisims LNG, sending money to US-owned companies for a project with few benefits and many risks for Canada?,” asked Kiki Wood, oil and gas campaign manager at Stand.earth.
“The clean energy economy offers far better choices for prosperity, jobs, long-term viability, and sovereignty,” she added.
September 16th 2026
