September 17, 2009 - Speeches
Address given by Sophie Brochu
President and Chief Executive Officer
Chambre de commerce et d’industrie de Laval
September 17, 2009
(Check against delivery)
Ladies and Gentlemen,
Hello! And thank you for inviting me to launch the 2009-2010 series of lunchtime conferences.
The fiscal year that has just ended has been marked in large part by an almost incessant flow of bad economic news. Like you, I am fervently hoping that the year to come will see the tide turn, bringing us better news.
To set the tone, I have chosen to speak to you about the positive things happening in my sector – natural gas – and to tell you how your companies and institutions can also benefit.
For some months now, natural gas has been making the headlines. Again this morning, it was the subject of a full section in La Presse. Natural gas is in the headlines for two reasons: first, because the price is low; secondly because, over time, Québec has been catching up with major industrialized countries all over the world that have long recognized the economic and environmental advantages of natural gas.
Let’s take a closer look at these two aspects.
First, let’s talk about the price of natural gas, which is at its lowest point in the last seven years. It is currently trading at less than 4 U.S. dollars per million cubic feet. This compares to the peaks of 12 dollars we saw during the early 2000s.
The price of natural gas has fallen because stocks have increased considerably as a result of the push/pull of supply and demand. Demand has weakened due to the economic climate. You are going to say that this is a temporary phenomenon and that it will gradually recover as the economy rebounds. And you are right.
However, we can observe a reality on the demand side which appears to be structural and which is therefore going to be with us for some time. That is the contribution from what we call shale gas, natural gas lodged in very complex and very dense geological structures, inaccessible until now, but which new technologies have recently made exploitable. These technologies were developed in the aftermath of the high prices that encouraged research and development. As they say, every cloud has a silver lining. So, in just two years, shale gas has increased the total production of natural gas in the United States by 10%.
To make a long story short, there now is more natural gas on the continent to meet demand and that means our customers can buy it for less.
Those who do not know us well are surprised that Gaz Métro is happy to see a reduction in the prices of gas. It’s true that most companies don’t like to see the price of their product plunge. The difference is that Gaz Métro does not actually sell natural gas. What we really sell, and on which we make a profit, is the distribution service. We do not make a cent on the natural gas itself: we are obliged, by the Régie, to re-sell it to our customers at the same price as we ourselves pay our suppliers.
The lower natural gas prices obviously make it even more competitive than it was already. This is good news for three reasons: for the environment, for Québec’s public finances, and for the companies that use it.
First, for the environment, because natural gas is the cleanest fuel in common use. It emits one-third less greenhouse gases than fuel oil. It helps cut to practically zero the emissions of the particulates and atmospheric contaminants responsible for smog. Every time an oil customer converts to natural gas, it significantly reduces the environmental footprint of his or her activities and pollution in all its forms.
Secondly, it is good news for public finances and for Québec taxpayers. Let me explain by reminding you that electricity in Québec is sold at an artificially low price, below its market value. Just on the other side of the border, in Ontario or in the U.S., electricity is generally sold at two to three times more per kilowatthour than here at home.
When the price of natural gas is competitive enough to replace electricity in processes where gas is more efficient, such as heating space and water, it frees up electricity that Québec can re-sell, at a profit, on export markets. Last year, Hydro-Québec collected 16% of its revenues on 10% of its volumes, that is, volumes shipped outside Québec. The government thus has more money to pay for our public services and can thus similarly lighten the fiscal burden borne by Québec taxpayers.
For the last 10 years, natural gas has been more competitive than fuel oil or electricity in the commercial market. Today, natural gas has become very competitive with electricity in the residential sector.
All natural gas consumers in Québec obviously gain from the lower price of gas. And the larger the volumes consumed, which is the case for business and industry, the more significant the economic benefits.
Between July 2008 and today, the total amount billed our customers for the gross cost of a molecule of natural gas has dropped by more than 950 million dollars, a reduction of more than 50%. For the Laval region alone, the savings achieved total 25 million dollars - $25 million that today is in your hands rather than those of Western Canadian producers. Now it’s our turn! This money can be reinvested in capital in your industries, your businesses and your institutions – in training programs for your employees, in R&D, whatever. I’m sure you all know what to do with your money!
Château Royal, where we are meeting today, has seen the price it pays for a molecule of gas drop by more than 7,000 dollars a year, while a higher volume customer like Tergel has seen its annual savings rise to 500,000 dollars. The reduction in the price of natural gas helps compensate for the increased costs of distribution, which finance, in particular, the considerable investments we make to ensure the development, security and sustainability of our infrastructures.
Gaz Métro also has considerable assets here in Laval. Your region is an extremely important market for us. In recent years, the Laval natural gas grid has been extended by 14 km, equivalent to a little more than the total width of the island.
Laval is the second-largest city in Québec in terms of natural gas consumption, beaten only by Montréal. Other than Montréal, Laval is also the only place in Québec where the natural gas grid extends from one end of the territory to the other.
This illustrates its great potential for development, even more so since the population of Laval is growing faster than that of the metropolis, as indeed it has for several years.
Currently, there are six Gaz Métro customers in Montréal for one in Laval. But in the last three years, for six new customers connected in Montréal, we can count about four here.
Gaz Métro’s annual investments in Laval have risen from 3.5 million dollars in 2005-2006 to almost 5 million last year.
In the residential sector alone, projects currently in progress that will be supplied with gas easily exceed a thousand housing units. Other projects are also under way in Ste-Rose, Chomedey, and also in Duvernay, near the new planned extension of Highway 25. The progress of natural gas is also being helped by the general shift from a suburban construction model to a more urban style, near the metro stations.
For Gaz Métro, Laval is a city with exceptional economic potential that is well on its way to being realized.
Representatives from Laval Technopole are in the room today and they can talk much better than I can about the industrial and scientific strengths of the region, and I will not try to compete with them. However, I should like to highlight two aspects of the Laval economy that I find particularly interesting.
The first is the significant agri-food and horticultural industry here. Laval is now the horticultural capital of Québec, with more than 130 producers. The total industrial cluster includes almost 300 companies.
In the agricultural sector, natural gas is dethroning fuel oil more and more, improving the environmental report card and reducing the costs of production for those who switch. In Laval, two examples of major customers active in this economic activity sector are Serres Sylvain Cléroux and Ferme Grover.
Gaz Métro has been able to connect them to the natural gas grid and to service them since they are located in a city with a dense and diversified economic structure and they are thus near the major natural gas distribution arteries. Unfortunately, extending our grid is very expensive, which explains why many rural zones cannot profitably be served by natural gas. By locating in Laval, horticultural and agri-food enterprises are not only close to their destination markets, they also have easy access to the cleanest and least expensive source of energy for their operations.
The second striking trend in Laval’s development is the current and future densification around the new poles – the metro stations. Montmorency station in particular acts as a magnet, attracting homes and businesses.
Laval is thus made up more and more of a central district with its own character, which will contribute to structuring the economic life of the city. It is not by accident that this is the district of Laval where the Gaz Métro grid is at its densest. The density and the mixture of uses means Laval can deliver public services more efficiently and at less cost than to zones with a lighter density.
One of the keys to Laval’s success is how it has managed to foster diversity to create a rich economic and urban fabric. Laval thus joins the major cities in the world that have developed by encouraging diversification. A contrario, we can see that cities that have relied on just one niche, for example Detroit and the automobile, or Hamilton and steel, sooner or later often encounter problems that are difficult to overcome.
As goes economic development, so goes energy development. Energy is essential for all aspects of our lives. It is fundamental to see energy as a portfolio and to use each of its forms where it excels. Going all-electric makes no sense.
Québec has the extraordinary good fortune of having made the right decision in choosing to develop hydroelectricity and to promote these exceptional resources for both their economic and environmental value. But that does not excuse us from thinking about how to use this energy in the most efficient way so as not to our misuse our assets.
It goes without saying that Québec’s standing enables us claim to be leaders in electrical technologies. What is not true is that we can use our electricity for any and all purposes and that we can enjoy the luxury of squandering it.
However, that is what happens too often. Lighting is a particularly striking example of the inefficient use of electricity, because of its low price. Quebecers – individuals, businesses and cities – massively light up the night sky, a phenomenon known as light pollution.
Seen from space, Montréal is as bright as New York, which has 10 times more inhabitants. Québec City is as visible as Boston or Paris. The effects of needless consumption can also be seen on earth: on the whole territory of Laval, we can never distinguish more than about twenty stars in the night sky out of the thousands that we can see on a perfectly dark night.
That is just one example among many showing that we need to use energy efficiently and intelligently. Natural gas is the most appropriate and the cleanest energy source when used for heating space and water and when electricity is reserved for uses only it can serve.
This is a principle that is being recognized more and more in various domains – for example, in sustainable development. LEED certification, the most commonly used rating system for sustainable buildings in North America, gives more points to buildings that use high efficiency gas appliances for heating space and water than to all-electric buildings. In doing this, the Canada Green Building Council, which supervises the application of the LEED rating system, is recognizing that natural gas has a role to play in sustainable development.
In another domain, natural gas is already used in many countries, particularly Brazil and Argentina, but also in the United States, to replace diesel fuel in transporting goods and for heavy vehicles. This solution immediately helps reduce greenhouse gas emissions by 15-20%, and it almost completely eliminates the atmospheric contaminants responsible for urban smog.
Cities just about everywhere in the world use natural gas for public transit and for small vehicles like city sweepers. In fact, a South Shore company, Allianz-Madvac, makes natural gas street sweepers that it sells everywhere in the world, including to New York City.
Why can’t we use these technologies in Québec, with natural gas buses and sweepers on the streets of Laval and trucks that run on natural gas on our highways?
My goal is not to have you believe that natural gas possesses all virtues. But it does have several specific, well-known qualities, and so it can be claimed with good reason that it can contribute to the sustainable development of our society.
At Gaz Métro, we are not partisans of “instead of” but, rather, of “and.” There is a place for all energies in our society and it is up to us to think about and to weigh the advantages and disadvantages to determine which is the most suitable for each situation.
For several decades, Laval has experienced growth that has not flagged by wisely opting for diversity and by seizing good opportunities when they presented themselves. I hope that Québec, its companies, governments and municipalities will do the same when it comes to energy so as to ensure our prosperity and the preservation of our environment.
Thank you for your kind attention. I wish you all the prosperity you desire and my humble hope is that Gaz Métro will have the opportunity to contribute to that!