Why the Canadian dollar is undervalued: Natural gas in US $10, Europe $90, Canada 26-cents

Imagine having something the whole world is desperate for but unable to ship it.

That's the predicament for Canada and it's an ongoing and major headwind for the Canadian dollar. Canada has massive and extremely cheap natural gas reserves and was the chief supplier to all the US before the shale era. With the advent of LNG it could be a main supplier for the entire world.

The obvious solution is this:

Add in LNG export facilities and you can turn a cheap natural resource into an enormous windfall. But Canada has had 20 years to build its LNG industry and has completed exactly nothing. At one point there were nearly 30 projects at some stage of planning but virtually all of them have been abandoned.

Instead of building, Canada listened to:

As a result, there's a global energy crisis unfolding with no end in sight. Natural gas prices at Henry Hub in Texas today hit $10 for the first time since 2008. Dutch TTF is trading at €266 mWh, or about the equivalent of $90. At the benchmark hub in Alberta yesterday -- AECO -- gas traded at just C$0.26. Even worse, it traded at negative 5-cents on August 18. Canadian natural gas producers couldn't even give it away.

The problem -- as always for Canada -- is pipeline egress.

Canadian oil is also among the cheapest in the world, with Western Canada Select trading at a $19.70 discount to WTI today.

A sliver Silver Silver is a precious metal that is commonly traded on exchanges or through brokers. It is much more affordable than gold and thanks to its importance as an industrial metal as well as volatility, is widely traded.For precious metals traders, gold is a much more popular market. Big institutions buy gold as a currency hedge when real interest rates and yields on other assets become unacceptably low. Central banks will buy gold, not silver, as a reserve asset to diversify their currency exposure.In Silver is a precious metal that is commonly traded on exchanges or through brokers. It is much more affordable than gold and thanks to its importance as an industrial metal as well as volatility, is widely traded.For precious metals traders, gold is a much more popular market. Big institutions buy gold as a currency hedge when real interest rates and yields on other assets become unacceptably low. Central banks will buy gold, not silver, as a reserve asset to diversify their currency exposure.In Read this Term of good news is that some pipelines for both oil and gas will come online in the next two years. Michigan also lost an important appeal this week that will keep the appeal of Enbridge's Line 5 pipeline in Federal court and likely doomed to failure.

The LNG Canada project -- which is the only significant one to get off the ground -- is on schedule for completion in 2025. That will add 1.8 bcf in export capacity. It still pales in comparison to the 15 bcf the US will have by then but it's a start.

So far Canada has squandered an incredible opportunity. The loonie would be trading 10-20 cents higher right now if it had properly managed its natural resources. Investment would be surging into the country right now if there was the opportunity to get anything done in a reasonable timeframe.

This was likely a $1 trillion opportunity passed up. LNG Canada will cost around $40 billion and the country could have 10 of those in progress to match the US. The economics in Canada are better so that's conservative. That's $400 billion in direct investment right there. Double that with the associated pipelines and development of natural gas fields. The add in the flows from closing the discounts to global energy prices and it's easily $1 trilloin in time. That's against a total Canadian GDP of $1.6 trillion.

German Chancellor Scholz is in Canada this week and even he lamented huge Canadian regulator hurdles and long timeframes.

At the end of the day, the inability to build and pipeline in Canada is likely to be the undoing of Trudeau, US President Biden and many politicians in Europe.