Canada has just celebrated one of the largest private investments in its history, but one part of the $33-billion LNG Canada expansion is creating an awkward contrast with Ottawa’s push to build more major projects with Canadian materials.
LNG Canada has confirmed that highly specialized modules for Phase 2 of its Kitimat, B.C., terminal will again be fabricated in China. The company says the decision is driven by industrial capability rather than a preference for imported steel, arguing that Canada does not currently have a fabrication yard capable of manufacturing and delivering modules of the required scale. At the same time, significant amounts of Canadian steel are expected elsewhere in the expansion. The result is a revealing test of what “Buy Canadian” can realistically mean when a privately financed megaproject collides with gaps in domestic manufacturing capacity.
A $33-Billion Expansion Will Double Kitimat’s LNG Capacity
LNG Canada’s owners made their final investment decision on Phase 2 at the end of September, committing roughly $33 billion to expand the Kitimat export terminal. The project will add two more liquefaction trains to the two already operating, taking annual production capacity from about 14 million tonnes to 28 million tonnes. The expansion also includes another LNG storage tank, a condensate tank, an additional loading berth and expanded utility and processing systems. Shell has said commercial operations from the new capacity are targeted for the early 2030s.
The investment extends well beyond the plant itself. Coastal GasLink, the 670-kilometre pipeline carrying natural gas from northeastern British Columbia to Kitimat, will also be expanded. Five new compressor stations and facility upgrades are expected to nearly double the pipeline’s current transportation capacity of roughly 2.1 billion cubic feet per day. Ottawa says the completed LNG expansion would make the Kitimat operation the second-largest LNG facility of its kind in the world. For Canada, that means a much larger direct outlet for western natural gas into overseas markets rather than relying overwhelmingly on continental trade.
Why LNG Canada Says the Biggest Modules Have to Come From China
The Chinese sourcing decision centres on massive prefabricated processing modules rather than every piece of steel used in the project. LNG Canada spokesperson Paul Hagel said the company’s challenge is finding fabrication yards with the space, technical systems and marine access required to construct modules of this size and complexity. According to the company, there are no Canadian yards that can manufacture and deliver the required Phase 2 modules. LNG Canada says only five fabrication yards globally have the necessary combination of capabilities, including the yard operated by China Offshore Oil Engineering Co., or COOEC.
The physical scale helps explain the problem. During Phase 1, more than 215 modules of different sizes were delivered to Kitimat. The largest were approximately 45 metres wide, 75 metres deep and 47 metres high, while one early module weighed more than 5,000 tonnes. They were assembled at specialized yards, shipped by sea and moved from the Kitimat waterfront into position with self-propelled transporters. COOEC was already deeply involved in that work, fabricating major modules in China. Phase 2 therefore continues a construction model that LNG Canada has already used rather than introducing an entirely new sourcing strategy.
Ottawa’s ‘Buy Canadian’ Rules Do Not Automatically Control This Decision
The optics are striking because Ottawa has spent the past year expanding policies designed to steer more spending toward Canadian steel, aluminum, lumber, suppliers and workers. The federal Buy Canadian framework requires Canadian-produced steel, aluminum and wood in qualifying federal construction and defence procurements worth at least $25 million when the value of those materials reaches $250,000 and domestic supply is available. Separate rules also give preferences to Canadian suppliers and Canadian content in strategic federal procurement, with the threshold for that policy dropping to $5 million in June 2026.
LNG Canada, however, is not a normal federal procurement contract. It is a privately controlled joint venture, even though the project has been designated nationally significant and has received extensive government attention. When Prime Minister Mark Carney was asked whether Phase 2 would use Canadian or Chinese steel, he said the choice belonged to the project proponents while adding that Canadian steel producers would have opportunities to compete. That distinction matters. Ottawa can promote domestic materials, structure federal procurement around them and attach conditions to applicable grants or contributions, but it does not simply select suppliers for a privately financed LNG consortium.
Chinese Fabrication Was Already Part of Phase 1
The debate surrounding Phase 2 has a long history. When the first LNG Canada plant was being developed, its modular construction plan also depended heavily on overseas fabrication. In 2019, the federal government issued a remission order covering anti-dumping and countervailing duties that otherwise applied to certain fabricated industrial steel components contained in modules imported for the LNG Canada and Woodfibre LNG projects. Those trade measures had originally been intended to respond to dumped or subsidized fabricated steel coming from countries including China.
The finished Phase 1 plant illustrates what followed. Engineering and construction contractor Fluor says more than 215 modules eventually arrived at the Kitimat site, with the final module delivered from a fabrication yard in China in 2023. COOEC says it was contracted to construct dozens of modules for the project at its Qingdao yard, including core processing modules. The arrangement attracted criticism from parts of Canada’s structural-steel industry at the time, while LNG Canada argued that Canadian facilities lacked the scale and marine logistics needed for the work. Eight years later, essentially the same industrial constraint is at the centre of the Phase 2 sourcing decision.
Canadian Steel Is Still Expected to Have a Significant Role
The presence of Chinese-fabricated modules does not mean the entire $33-billion expansion will be built from imported steel. A substantial domestic component is planned for the Coastal GasLink expansion needed to feed additional natural gas to Kitimat. LNG Canada says the new compressor-station work is targeting almost 15,000 tonnes of steel from Canadian suppliers or mills. That would represent approximately 70 per cent of the steel required for that portion of the expansion.
That domestic target arrives at a difficult time for Canadian producers. Ottawa has introduced a series of measures intended to increase demand for domestically produced steel while the industry adjusts to a more protectionist North American trading environment. In August, the federal government launched a $100-million program offering rebates covering 50 per cent of eligible rail or marine transportation costs for Canadian steel moving between provinces and territories. The goal is to make it easier for mills to reach domestic customers. LNG Canada therefore shows both sides of the industrial challenge: Canada can supply conventional steel for significant infrastructure work, while extremely large preassembled LNG modules remain dependent on specialized overseas yards.
The Ownership Structure Makes LNG Canada an International Project by Design
LNG Canada was never structured as a purely Canadian industrial venture. Shell holds a 40 per cent interest, Malaysia’s PETRONAS owns 25 per cent, PetroChina and Japan’s Mitsubishi Corporation each hold 15 per cent, and South Korea’s KOGAS owns the remaining five per cent. Under the consortium’s equity-lifting model, each participant is responsible for taking and marketing its proportionate share of the LNG produced. PetroChina’s presence as both a 15 per cent shareholder and a major Asian energy company adds another international dimension to a project whose commercial purpose is to connect Canadian gas with overseas buyers.
Kitimat’s location is central to that strategy. Natural gas travels across British Columbia through Coastal GasLink before being liquefied and loaded onto oceangoing tankers. Canadian officials have emphasized the terminal’s proximity to Asian markets: shipments from the B.C. coast can reach Asia in roughly eight to 10 days, substantially faster than routes from the U.S. Gulf Coast. Phase 2 therefore serves two different economic objectives at once—expanding Canadian resource exports while relying on an international ownership, engineering and manufacturing network to make that expansion possible.
Thousands of Canadian Jobs Remain Attached to the Expansion
Steel sourcing is only one part of the economic footprint. LNG Canada expects as many as 4,000 new construction jobs at the Kitimat facility during peak Phase 2 activity, while construction of the additional Coastal GasLink compressor stations is expected to require roughly another 2,100 workers. Once Phase 2 is completed, LNG Canada expects to add about 90 permanent full-time positions and approximately 150 contractor roles to an operating workforce that already includes more than 400 permanent employees in Kitimat.
Indigenous and local participation is another significant component. The federal government says LNG Canada has awarded nearly $5 billion in contracts and procurement to Indigenous-owned and local businesses in the region. Five First Nations—the Gitga’at, Gitxaała, Haisla, Kitselas and Kitsumkalum—also have an option to invest up to $1 billion through MNT Investments in an entity tied to the new Phase 2 LNG storage tank. Those figures do not erase the debate over imported modules, but they show why the project cannot be reduced to a simple Canadian-versus-Chinese steel story. The larger question exposed by Phase 2 is whether Canada’s industrial base currently has the specialized fabrication capacity required to capture more of the work on future megaprojects.
