LNG Canada’s $33B Expansion Will Use Chinese Steel Despite Ottawa’s ‘Buy Canadian’ Push

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Canada is preparing for one of the largest private-sector investments in its history, but some of the steelwork at the centre of the project will not be Canadian.

LNG Canada’s $33-billion Phase 2 expansion in Kitimat, British Columbia, is moving ahead with plans to use major modules fabricated in China, even as Ottawa promotes a broader “Buy Canadian” strategy designed to strengthen domestic manufacturing and steel demand. The decision does not amount to a violation of the federal procurement policy, which primarily governs federal purchasing and associated funding programs. Still, it creates an unusually visible test of how far Canada can translate domestic-content ambitions into private megaproject supply chains. LNG Canada says specialized manufacturing capacity is the decisive factor. Canadian steel fabricators, however, argue that more of the work could potentially be done at home.

The $33-Billion Expansion Will Double the Kitimat Terminal

LNG Canada’s Phase 2 is enormous even by global energy-project standards. The joint venture has approved approximately $33 billion in new investment to expand its Kitimat export facility, increasing annual LNG production capacity from roughly 14 million tonnes to 28 million tonnes. Two additional liquefaction trains will be added alongside another LNG storage tank, a condensate tank, expanded processing infrastructure and another loading berth. Commercial operations from the expansion are expected to begin in the early 2030s.

The expansion is also tied directly to another major construction program hundreds of kilometres away from the terminal. Coastal GasLink, the 670-kilometre pipeline carrying natural gas from northeastern British Columbia to Kitimat, will nearly double its transportation capacity. Instead of constructing another pipeline beside the existing one, the project plans to add five compressor stations and upgrade existing facilities. Ottawa estimates LNG Canada Phase 2 could create more than 4,000 direct construction jobs, while the associated Coastal GasLink work could employ as many as 2,100 people during peak construction.

The Largest Modules Are Expected to Come From China

The most politically sensitive part of the procurement plan concerns the enormous prefabricated modules needed for the two new LNG processing trains. LNG Canada has confirmed that China Offshore Oil Engineering Co., commonly known as COOEC, will again be involved in supplying specialized components. The Chinese company has extensive experience constructing enormous integrated modules for oil, gas and LNG facilities and operates large coastal fabrication yards capable of putting completed structures directly onto heavy transport vessels.

LNG Canada says the choice is based on industrial capability rather than a preference for Chinese steel. According to the company, Canada currently has no fabrication yard combining the physical space, production capacity, quality systems and direct marine access needed to manufacture and ship modules of the size required for Phase 2. LNG Canada says only five yards worldwide meet those requirements. Marine access matters because some completed structures are so large that moving them across Canada by conventional road or rail would be impractical. Instead, they can be assembled at a coastal yard, placed on specialized vessels and transported directly to Kitimat.

COOEC Already Built Massive Components for Phase 1

The Chinese supply chain is not new to LNG Canada. COOEC played a major role in construction of the original Kitimat terminal, producing 35 modules for Phase 1 at its Qingdao fabrication yard. The company says those modules had a combined weight of approximately 178,830 tonnes and included 19 core process modules. One individual module weighed roughly 10,000 tonnes, illustrating the scale involved in constructing LNG equipment before any of it reached British Columbia.

The approach allowed significant portions of the liquefaction plant to arrive in Kitimat already assembled, reducing the amount of complicated fabrication required at the project site. COOEC said the integrated construction method cut the workload associated with on-site installation substantially. That earlier procurement decision also generated controversy in Canada. Ottawa ultimately issued a remission order covering anti-dumping and countervailing duties on specified fabricated industrial steel components imported for LNG Canada and Woodfibre LNG. The federal regulatory analysis acknowledged objections from Canadian steel representatives, who argued domestic manufacturers could produce some of the components or that construction could be organized differently to increase Canadian participation.

Ottawa’s ‘Buy Canadian’ Rules Do Not Automatically Control This Project

The apparent contradiction between Chinese fabrication and Ottawa’s Buy Canadian campaign requires an important distinction. The federal Buy Canadian policy applies directly to qualifying Government of Canada procurement and to grants and contributions programs. For large federal construction and defence contracts, the rules can require Canadian-produced steel, aluminum and wood when established financial thresholds are met and Canadian supply is available. LNG Canada, however, is a privately owned commercial joint venture rather than a federal procurement contract.

That leaves the project owners with considerably more freedom over their suppliers. The federal government has supported LNG Canada Phase 2 through the Major Projects Office and has promoted the development as a project of national significance, but that does not convert every private purchasing decision into a federal procurement decision. The distinction matters because Prime Minister Mark Carney previously described major national projects as being central to the government’s broader effort to create more demand for Canadian materials. In practice, Ottawa can encourage Canadian sourcing without necessarily having authority under its procurement rules to dictate every supplier selected by LNG Canada.

Canadian Fabricators Are Challenging the Capacity Argument

Not everyone in Canada’s steel industry accepts the idea that domestic companies cannot meaningfully participate in the module work. The Canadian Institute of Steel Construction has questioned LNG Canada’s assessment and says Canadian fabricators could potentially perform a substantial portion of the work through collaboration across multiple companies. The organization has also said it wants more information about Phase 2 specifications, schedules and individual work packages before determining exactly how much could realistically be produced domestically.

That disagreement echoes arguments from Phase 1. Canadian steel representatives objected when large LNG modules were sourced overseas during the original development, arguing that domestic fabrication capacity was being overlooked. LNG Canada maintained that the immense integrated modules required specialized yards unavailable in Canada. The debate is therefore more complicated than whether Canadian mills can manufacture steel. Canada has significant steelmaking and fabrication capabilities. The narrower question is whether Canadian facilities can economically build, integrate, test, move and load out complete LNG modules weighing thousands of tonnes within the project schedule. LNG Canada and domestic industry representatives currently offer different assessments of that capability.

Canadian Steel Is Still Expected to Supply Part of the Expansion

Chinese fabrication does not mean the entire expansion will be built from imported steel. One substantial opportunity for Canadian suppliers is emerging along the Coastal GasLink system. To move enough additional natural gas to supply two more LNG trains, Coastal GasLink plans to construct five compressor stations and upgrade facilities along its existing route. LNG Canada says the compressor-station program 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 pipeline expansion. It highlights the difference between conventional steel products and enormous fully integrated LNG modules. Canadian mills and fabricators already supply pipe, structural products and other equipment to energy projects across the country. Building a gigantic process module that must be assembled beside deep water, loaded intact onto a ship and transported to Kitimat involves a different manufacturing system. The federal government has indicated that it wants the Canadian share of the project’s supply chain to grow, making procurement outside the core liquefaction modules an important measure of how much domestic industry ultimately benefits.

The Decision Comes at a Difficult Time for Canadian Steelmakers

The timing makes the Chinese sourcing decision especially sensitive. Canadian steelmakers have been dealing with severe disruption from U.S. trade restrictions. The Bank of Canada reported in its April 2026 Monetary Policy Report that Canadian steel exports had fallen by approximately half after U.S. tariffs were imposed, while domestic steel production and employment also declined. The United States has historically been the overwhelmingly important foreign market for Canadian steel, meaning reduced access cannot easily be replaced by another export destination.

Ottawa has responded by attempting to generate more demand inside Canada. Measures have included tighter tariff-rate quotas on imported steel, tariffs targeting certain steel products containing metal melted and poured in China, expanded protection for steel derivative products and policies intended to make Canadian steel more competitive in domestic construction. For countries without a free-trade agreement with Canada, steel quota levels have been reduced to 20 per cent of 2024 import volumes, with a 50 per cent surtax applying above quota levels. Against that backdrop, every large Canadian infrastructure project represents a potentially valuable source of domestic demand.

LNG Canada Was Designed Around a Global Supply Chain

The international sourcing strategy is easier to understand when the ownership structure of LNG Canada is considered. Shell holds a 40 per cent interest, Malaysia’s PETRONAS owns 25 per cent, PetroChina holds 15 per cent, Japan’s Mitsubishi Corporation owns another 15 per cent and South Korea’s KOGAS holds the remaining five per cent. The facility therefore combines Canadian natural gas and infrastructure with capital, engineering expertise, customers and supply networks from several major global energy markets.

Each partner is responsible for supplying its share of natural gas and marketing its proportionate share of LNG production. Shell alone expects to receive nearly six million tonnes per year of additional LNG from Phase 2. The multinational model helps explain why procurement is not structured like a conventional government infrastructure contract in which nearly every purchasing decision flows through a single Canadian public authority. LNG Canada operates in an international engineering and construction market in which specialized modules, equipment and expertise are routinely sourced from several countries. The policy debate is consequently about how much more of that global supply chain Canada could realistically capture.

Thousands of Canadian Jobs and Indigenous Investments Remain Attached to Phase 2

The origin of the process modules is only one part of the project’s economic footprint. Ottawa expects more than 4,000 workers to be employed at the Kitimat site during peak Phase 2 construction. LNG Canada says more than $4.9 billion in contracts and subcontracts have already gone to Indigenous-owned and local-area businesses through the wider project, while thousands of Canadians worked on Phase 1 construction and its associated infrastructure.

Phase 2 also includes a potentially significant Indigenous ownership component. MNT Investments LP, representing the economic development organizations of the Gitga’at, Gitxaała, Haisla, Kitselas and Kitsumkalum First Nations, has an option to invest as much as $1 billion in a special-purpose entity that would purchase the new 225,000-cubic-metre LNG storage tank associated with the expansion. The structure is intended to create a long-term infrastructure ownership position rather than simply short-term construction contracts. LNG Canada and governments estimate that Phase 2 could generate more than $50 billion in government revenues over its operating life through taxes, royalties and economic activity, although those figures remain long-term projections rather than guaranteed outcomes.

The Bigger Question Is Whether Canada Builds More Industrial Capacity

The Chinese modules expose a broader question beneath the procurement dispute. If LNG Canada is correct that no Canadian yard currently has the scale, coastal location and integrated capabilities required for the work, requiring domestic production immediately could create schedule, cost or engineering problems. If Canadian fabricators are correct that industry collaboration could capture substantially more of the project, the expansion represents an opportunity to develop domestic capabilities that could be useful on future LNG, mining, energy and infrastructure projects.

That makes Phase 2 a practical test of two economic objectives Ottawa is pursuing simultaneously: attracting enormous amounts of international investment and increasing Canadian participation in the supply chains created by that investment. The two objectives do not automatically produce the same procurement decisions. LNG Canada can deliver thousands of Canadian construction jobs, Indigenous investment opportunities and new export capacity while still purchasing some of its largest manufactured components overseas. As construction proceeds toward the early 2030s, the more consequential measure may be whether Canadian suppliers capture a greater share of the remaining billions of dollars in work — and whether Canada develops the heavy-fabrication capacity needed to compete for the next generation of megaprojects.

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