Mother Nature and the price of natural gas

Findings following recent winters

During the 2013-2014 winter, an unusual meteorological event, called the Polar Vortex, generated temperatures below seasonal normals throughout North America, causing a rise in the prices of natural gas. The weather was particularly challenging for the market at Dawn, starting in January 2014 and continuing without respite until mid-March. Spot market prices exceeded $25 a gigajoule on several occasions. The price differential between Express and Dawn was the most volatile, due to the scarcity of available transportation capacity between the two points.

Against all expectations, the 2014-2015 winter was even colder than the preceding one. However, the market reacted much less strongly. Why?

Firstly, although it was a very cold winter in the Northeast , the West had a much milder one. Globally, the average temperature was much warmer on all the continent this year than it was in the previous one.

Moreover, although heating degree days1 in the Northeast were much higher, they were not distributed in the same manner this year. November and December were warmer than normal this last winter, thus minimizing recourse to storages in Eastern Canada. On January 1, 2015, the levels of inventory in the east of the country were thus 210 BCF, versus just 139 BCF on the same date a year earlier.

Even though January and February 2015 were extremely cold, this had little effect on natural gas prices since stock levels were sufficient to meet demand until the end of the season. The 6% increase in natural gas production in the United States in 2014 also contributed to reassuring markets.

Natural gas prices at the principal Canadian exchange hubs were thus very low last winter: CAN$2.91/GJ at AECO, CAN$3.08/GJ at Empress, and CAN$4.33/GJ at Dawn. As for the futures market, the prices indicated for summer 2015, as of March 31, 2015, were CAN$2.55/GJ at AECO, CAN$2.72/GJ at Empress, and CAN$3.39/GJ at Dawn.

Johanne Paquin, Senior Economist

Rates and regulatory updates

Abandonment rate - explanation

An indicated in the Blue Bulletin in March 2015, the transportation rate was increased on February 1, 2015 following a decision by the National Energy Board (NEB) on the TransCanada PipeLines Limited (TCPL) abandonment costs.

This decision resulted from a process the NEB began in 2008 aimed at setting up a collection and set-aside mechanism for funds related to the discontinuance of pipeline operations. The NEB thus instructed all pipeline companies subject to its regulations to establish an estimate of the total costs of discontinuing operating activities in order to recuperate them from all network users.

Rates cases 2015 and 2016

On March 20, 2015, the Régie published a procedural decision for rates cases 2015 and 2016, which are to be treated concurrently. The 2016 rates case will be tabled at the end of May and the public hearing to study the two rates cases is expected to be held from September 8-18. A final decision should be rendered in fall 2015, which will get us back to the regulatory calendar.

Pierre Habre, Senior Advisor, Regulations

Interchangeability and calorific value of natural gas

The provenance of natural gas has been diversified for some years. The recent exploitation of natural gas deposits from geological shale formations in North America, the imports of liquefied natural gas, plus the reclamation of renewable natural gas from residual organic matter, may slightly vary the composition of natural gas.

For all these reasons, the NEB had to authorize some variations in the composition of natural gas transported by TCPL. These variations, covered by standards set by the NEB, refer to what is called the “interchangeability” of natural gas (NEB Resolutions 09.2008 and 10.2008).

For more details, please consult Section 5.5 of the TCPL General Terms and Conditions.

The variations in the composition of natural gas are measured by chromatographs in order to determine the calorific value. An upward trend has been observed for several months by some of our customers; this phenomenon is explained in part by the diversification of procurement sources for the natural gas, which in the past came mostly from Empress in Alberta. The natural gas from the new sources has a higher calorific value.

TCPL always assures the quality of the natural gas it transports on its network. Thus, as is explained on Page 13 of the TCPL General Terms and Conditions, this calorific value must always be between 36.00 MJ/m3 and 41.34 MJ/m3 at the various delivery and reception points.

Guillaume Laprise, Senior Advisor, Gas Procurement

Your dedicated team is renewing itself!

We are pleased to announce the arrival of three new advisors to the Major Industries Sales team.
  • Marc-André Godbout formerly occupied the position of Principal Commercial Delegate at Hydro-Québec, where he represented the state-owned company in dealings with its large power customers. He negotiated the commercial agreements required to satisfy all his clients’ needs for electricity service.   
  • Mathieu Guertin was formerly Project Director in the Americas and Asia Directorate at Investissement Québec before joining the Gaz Métro team. He also worked as Sales Director – Europe, Russia and Africa at Morgan Schaffer, where he developed an international sales network among major energy companies. 
  • For her part, Geneviève Lebeau was Engineer, Commercial Sales and Representative, Commercial Sales at Carrier Enterprise, a large supplier of ventilation and air-conditioning equipment. In her 10 years of experience there, she developed contacts with important customers, consultants and general contractors.

These appointments also coincide with the retirement at the end of April of our friend and colleague, Denis Beauchemin. After many years on our team, Denis can now devote full time to his passion, his vineyard. We wish him all the very best in making this family project a success.
1 Degree days measure the difference between the average temperature on a given day compared with a reference temperature and expressed in needs for heating. A degree day of heating is counted when any average daily temperature falls below 13oC. “Normal” degree days correspond to the average since October 1, 1970.